Biochemicals Archives

October 18, 2016

Amyris' Mysterious Partner

Jim Lane

In California, Amyris (AMRS)
has a new partner, described fetchingly yet with near-to-complete
vagueness as a “a leader in food ingredients and nutraceuticals”
which is roughly as helpful as describing a person as “someone who
enjoys ice cream”.

Some ice cream there is, nevertheless, in this agreement, which
will bring a short-term collaboration investment of $10 million,
an equity investment of up to $20 million at $1.40 per share, and
$100 million in annual revenue starting in 2017 connected to the
production and cost improvement of fermentation molecules. One
thing, and the only one, we discover about the identity of this
partner, is that they maintain (presumably extensive) industrial
fermentation facilities in Asia. The collaboration is subject to
completion of definitive agreements and the obtaining of required
approvals. Amyris expects this to be completed by the beginning of
December 2016.

Striking as this is, let’s make sure that we separate this from
the “expanded partnership” announced with a separate global
nutraceuticals market leader on September 30, which included the
addition of a new nutraceutical target, a credit line of up to
$25mm with a five-year maturity, an option for a $5mm strategic
investment, and a material expansion in expected revenue.

Kudos, says The Street, but we’ll wait to revise our earnings
targets

Of the agreements, Jeffrey Osborne of Cowen & Company wrote:
“We are encouraged by these recent announcements which provides
visibility into collaboration funding for the next few years in an
end market that has historically carried higher margins relative
to other end markets in the space. We are leaving our estimates
unchanged at this time given the limited amount of details
provided in the release. Amyris expects completion of the
definitive agreements and to obtain the required approvals for the
collaboration by the beginning of December 2016.”

Amyris’ John Melo was in a bullish mood as well. He said, “We’re
very pleased with the opportunity to partner with one of the
leading nutraceutical and food ingredient suppliers in the world.
Our current annual revenue run rate of over $100 million combined
with the $100 million of annual revenue we expect from this
partnership starting in 2017, should help us deliver stronger than
expected growth in 2017 and beyond.”

The Farnesene Bulls are running

By the way, InsiderFinancial.com writes:

“The thing to recognize here is that demand for farnesene is
increasing dramatically (analysts expect the market to grow more
than 27% CAGR to 2023, from its 2015 levels of 8 kilo tons in
2015) and Amyris is the only company in the world that can produce
it the scale required (we could be even stricter here and say it’s
the only company that can produce it full stop) to meet this
demand.”

If those numbers hold, that’s good news for Amyris, and investors
such as Kuraray and Total. But also let’s not overlook Intrexon.
Or even Chromatin.

Back in 2014, the lab geniuses of Chromatin announced that it had
created sorghum plants containing elevated levels of the
energy-rich compound farnesene. The milestone was supported in
part by the Department of Energy’s ARPA-E program Plants
Engineered To Replace Oil (PETRO). “We have demonstrated that
sorghum can be modified to produce significantly elevated
quantities of farnesene relative to commercial inbred sorghum
lines, a molecule that can be used to create energy-rich biofuel,”
said Chromatin CTO Ken Davenport at the time.

Keep a sharp eye on Intrexon

Over on the low-cost feedstock front, keep an eye out for
Intrexon. They tipped two summers ago that they had demonstrated
bioconversion of methane to farnesene in the lab. This was the
second product, following isobutanol, which Intrexon has upgraded
from natural gas employing its unique cellular engineering
capabilities.

Intrexon is developing microbial cell lines genetically enhanced
to convert methane to higher carbon content compounds at ambient
temperatures and pressures, thereby reducing the significant
expenditures compared to standard gas-to-liquid processes. In
theory, you get low capex — and you get access to that deliciously
low-cost feedstock, our friend methane.

The 8 Rays lighting Amyris’ Golden Lamp

We’ll add the pair of nutraceutical deals and name that Ray #1.
The other 7?

#2. Gingko. Entered into an Initial Strategic
Partnership Agreement with Ginkgo Bioworks to accelerate
commercialization of bio-based ingredients and establish clear
leadership in industrial biotechnology with a combined offering
that we consider unparalleled. In connection with the agreement, a
license fee of $15 million was paid on July 25, 2016, to Amyris in
exchange for use of certain Amyris technology and the parties
agreed to pursue the negotiation and execution of a definitive
partnership agreement that includes significant value sharing. The
partnership is expected to deliver more new ingredients into the
global market over the next three years than the entire industry
has achieved in the last 10 years.

Melo pointed to the company’s DARPA collaboration which has
identified 400 different molecules, “all of which we can
commercialize at our discretion.” Also, 5th. Additional with
Gingko, “we are already collaborating to align R&D and take 70
products to the world’s leading brands.”

Melo said that critical to Amyris growth will be “more capacity”
and the Amyris potential to “accelerate products”. Meanwhile, “the
Brotas plant is running flat-out with farnesene production”, the
North Carolina facility too. The company has plans to double
capacity at Brotas and is speaking with potential collaborators
about potential expansions to increase capacity for 2017.

#3. Cosmetics and personal care. Announced
multi-year, multi-million-dollar collaboration in cosmetic active
ingredients with Givaudan to engineer and produce cosmetic active
targets for global commercialization by Givaudan. Amyris sees this
partnership delivering an annual run rate $50M per year

#4. Fragrance & flavors. Began
commercialization of novel fragrance product with Takasago
International Corporation. The company said that it had greatly
expanded in F&F novel fragrance ingredients, partnered with 4
of the top 5 companies, and is “on track to become one of key
suppliers.”

#5. Jet fuel. Jointly announced with Cathay
Pacific a two-year biojet agreement supporting continued strong
farnesene demand and the future of sustainable air travel; initial
flight on May 12, 2016 using the biojet blend was the longest
flight using a renewable jet fuel to date. This fuel is supplied
through the Amyris Total partnership that is dedicated to making
BioJet an industrial reality.

#7. Janssen. Entered into research agreement
with commercial license option with Janssen Biotech, facilitated
by Johnson & Johnson Innovation, to use Amyris’s µPharm
platform for rapid integrated discovery and production of
therapeutic compounds thereby opening a new area of compounds
previously not accessible for new drug discovery. “We expect to
sign one more collaboration by the end of the year, ending at the
high-end of our range, to develop a library of natural and natural
like of therapeutic compounds, which nature has the potential to
provide and we have the ability to produce.”

#8. Biogen. Amyris announced a partnership with
Biogen, Inc. to develop alternative cell lines supporting
production of therapeutics, marking second major partnership in
biopharma market, which is now positioned to become Amyris’s
largest opportunity for collaborations. The Biogen partnership is
the most exciting of all,” CEO John Melo said,. With it, Amyris he
said would make “ a transformative change to biopharma where
partner would be able to employ [Amyris biotechnology] instead of
using cells from mammals. Others have attempted and failed, but we
are positioned to deliver life saving therapeutics and make them
more widely available. This could be game changing for
biopharmaceuticals, and Biogen will fully fund the development.”

Amyris – time to expand capacity?

At some stage Amyris, which is essentially sold out at Brotas,
will have to bite the bullet and expand capacity instead of
engaging in margin-munching tolling arrangements. We’ll stand by
for that.

When will the stock take off?

Two milestones to watch.

1. If Amyris reaches $100 million in revenue for 2016, that’ll be
a milestone we’d expect investors to note and re-value the company
at. Identifying at least a couple of these nutraceutical partners
wouldn’t hurt either. The company says it has hit the $100M
“annual revenue run rate” mark, so that day should not be all that
far out ahead, assuming that, when the dust has settled, these
revenues are coming in at normal margins and don’t represent
giveaway deals to sell out the production volume at the plant.

The average price-to-sales revenue ratio on NASDAQ is 3.2. That
would put Amyris around the $330M mark in terms of market cap when
it hits $100M in revenues — and the company is at $183M right now.
There’s around $100M in debt on the books, but with the NASDAQ
debt/equity average hovering around 0.65, the debt level doesn’t
appear to be a drag on share prices.

2. Break-even on operations. Fear of dilutive capital raises
appears to be on investors’ minds, especially given the potential
need to expand capacity soon. The double whammy of raising money
for a second plant and to fund continuing operations from the
first plant appears to be a factor. Can Amyris reach cash
break-even off the first production plant? We’ll probably know
when we reach the end of the year — so, somewhere between December
and February (when earnings are presumably announced), expect that
Amyris investors will substantially and upwardly revise the value
of the company, or sigh and settle in for the long-haul of
dilutive capital raises until he second plant is constructed and
the offtake is sold.

August 19, 2016

Amber Means Caution But BioAmber Means Go

In Canada, BioAmber (BIOA)
recorded net income of $4.8M for Q2 2016 and an operating loss of
$1.0M on revenues of $2.5M. Revenues were up 73 percent over Q1 and
637 percent compared to Q2 2015.

For those less familiar with the company, it produces succinic
acid from sugar at a first commercial-scale plant which opened
recently in Sarnia, Ontario. Succinic acid has a small existing
global market but can be converted into a variety of chemical
building blocks used to produce a range of plastics, paints,
textiles, food additives and personal care products.

If for some this relatively small venture is “the hope for the
renewable chemicals movement”, the reason lies in oxygen. Which is
to say, sugar has it, succinic acid has it, but petroleum doesn’t.
That means that any effort to make succinic acid from petroleum
involves at least one extra process step — the add-back of oxygen.
It also means that the yield of succinic acid from sugar is
inherently higher, on a percentage basis than, say, the production
of hydrocarbons used as diesel or jet fuel, or chemicals such as
ethylene.

That lowers the threshold at which renewables can compete on cost
with petroleum-based molecules — and that’s no small matter when
fossil fuel prices have tumbled to 10-year lows. Combine that with
the usefulness of succinic acid as a building block, and you have
a powerful combination.

So, many eyes — beyond the usual collection of employees,
investors, and supply chain partners — have been on the Succinic
Sultans of Sarnia.

The 5 Key Trends

Let’s look at five key BioAmber trends, and measure’s the
venture’s progress.

1. Product cost.

Aside from product acceptance — already assured via a
transformative offtake deal with Vinmar that we covered here,
there’s nothing more important than product cost. It’s the fatal
problem for most early stage advanced bioeconomy ventures. It’s
the difference between being stuck in small, high-margin niche
markets, possibly forever and certainly while the cash runs out —
and a breakout into larger volume markets where the growth lies.

There’s good news here. “The cost per ton of bio-succinic acid
sold continued to decrease, with a 30% reduction relative to the
previous quarter,” said the Company in its earnings report. In the
context of overall goals? “Sarnia variable costs were lowered to
the Company’s 2016 target.”

2. Up-time.

If you’ve been following the travails of various cellulosic
ethanol ventures, you know that they have excellent product prices
at the moment and mandated markets. Production plant up-time has
been a huge headache.

On that note, it’s excellent news to read that “Sarnia achieved
an uptime rate of over 80% in the month of June 2016, having
increased steadily during the second quarter.” The Q3 uptime rates
will be critical to understanding if BioAmber has cracked the
operational puzzle, but the progress if highly encouraging.

3. In-spec production.

One of the ventures key performance indicators has been the
production of in-spec chemicals. It’s fermentation regime has
shown a tendency to wobble off course in the early days — the
result, 37% of the product was off-spec in Q1. Could be that the
corner was already turned here. Less than 7% of total Q2
production of bio-succinic acid was off-spec.

4. Cash and inventory on hand.

The miseries imposed by a cash drain need no great emphasis here,
for readers who have worked on early-stage ventures in the cash-
burn phase. Suffice to say, if there’s one type of burning
sensation in the Valley of Death more painful than the others,
it’s usually the cash burn. Cash is a little light in BioAmber
world — but the burn rate is low. There’s $5.5M on hand as of June
30, compared to cash on hand of $6.9M on December 31, 2015. The
company added in its quarterly earnings call that it closed on an
additional $7.6M from the previously disclosed BDC Capital loan.
So, liquidity is assured for now, but a dilutive capital raise may
be in the cards before the venture breaks even at Sarnia. We’ll
keep an eye on that one.

Another item to note is that the company has 1,200 metric tons of
product inventory on hand as of Q2. The plant has a rated capacity
of 30,000 tons — so, it’s not a big pile-up, but worth watching as
both a source of future cash and as a sign that BioAmber’s
deliveries are timing well with its production.

5. Overheads.

Project watchers have been keeping an eye on R&D expense,
which had ballooned to $5.0M in Q2 2015 as the company readied to
launch the new commercial plant. Happily, that’s tumbled to $1.5M.

Interestingly for a company going through a ramp-up, sales
expense is dropping. In Q2 2015 the figure hit $1.1M for the
quarter, but dropped to $584K in Q2 2016. The company noted that
stock option value has dropped as the value of the company’s stock
has declined. If the stock begins to rise, that’s go up again. But
it’s also a sign that the company’s embrace of a big offtake
relationship with selected partners such as Vinmar is going to
keep that expense lower than at projects that opt to sell direct
to customers.

Reaction from Planet BioAmber

“BioAmber continues to meet ramp-up expectations at its Sarnia
plant. We have made excellent progress in the plant’s reliability
and performance, while continuing to increase production levels
and drive down unit costs,” said BioAmber CEO Jean-Francois Huc.
“Second quarter sales were on track, generating a 73% increase in
sales over Q1, while Q2 operations improved throughout the
quarter, culminating in a June uptime rate of over 80%. The team
is now entrenching its operating routines as our Sarnia facility
moves towards full production levels,” he added.

The Bottom Line

Progress? Excellent. One more quarter of results is probably all
that is needed to assure observers that BioAmber’s start-up period
is essentially over. Then, of course, the questions will be the
more usual ones of price and production volume. And in the world
of renewables, the rate of adoption by customers and the rate of
application development.

Which brings us to formulations. We raised this issue with
coverage of TerraVia last week. One of the real advantages of
succinic acid is that it can be used as a chemical building block.
We
noted in a review here that “Bio-succinic acid forms the
basis for many high-value replacement products, including phthalic
anhydride, adipic acid, and maleic anhydride. Fumaric acid is
commonly used as a preservative in food and beverages, in the
production of paints and coatings, as well as in the production of
paper. It is the chemical equivalent of maleic anhydride (MAN) and
water, and therefore can be used as a replacement for MAN.”

So, we’ll be keeping a sharp look-out for evidence that
formulators are switching from petroleum-based feedstocks to
biosuccinic as a source for any or all of those. It will be a huge
demand driver, ultimately, not only for BioAmber but for Reverdia,
the joint venture between DSM and Roquette Frères, which in 2012 commenced
operations in Cassano Spinola, Italy, at a 10K/yr
biosuccinic acid plant. And somewhere out there is the mysterious
Myriant venture, which opened its plant in Louisiana and drew a
thick iron curtain around the project’s progress.

August 17, 2016

Amyris: The New Colossus Aims To Unlock Its Golden Door

Jim Lane

In California, Amyris (AMRS)
reported a Q2 net loss of $13.8M on revenues of $9,6M, up from $7.8M
in Q2 2015. Revenues rose 27% from the corresponding period in 2015
primarily driven by the shipment of a new novel fragrance product,
as well as Neossance Squalane sales. At the same time, Amyris, which
has recorded $18.4M in revenues for the first half, re-affirmed
guidance for the year that it would reach $90M in annual sales and
positive cash flow from operations in 2017.

With that, Amyris would have increased revenues by 400% in the
second half, compared to the first half — so, a breakout for the
company which was ranked last year as the #1 Hottest Company in
the sector by the Digets’s readers and international selectors.

The Seven Rays lighting Amyris’ Golden Lamp

Let’s look at the 7 factors that have the company poised for a
revenue transformation in the second half.

1. Gingko. Entered into an Initial Strategic
Partnership Agreement with Ginkgo Bioworks to accelerate
commercialization of bio-based ingredients and establish clear
leadership in industrial biotechnology with a combined offering
that we consider unparalleled. In connection with the agreement, a
license fee of $15 million was paid on July 25, 2016, to Amyris in
exchange for use of certain Amyris technology and the parties
agreed to pursue the negotiation and execution of a definitive
partnership agreement that includes significant value sharing. The
partnership is expected to deliver more new ingredients into the
global market over the next three years than the entire industry
has achieved in the last 10 years.

Melo pointed to the company’s DARPA collaboration which has
identified 400 different molecules, “all of which we can
commercialize at our discretion.” Also, 5th. Additional with
Gingko, “we are already collaborating to align R&D and take 70
products to the world’s leading brands.”

Melo said that critical to Amyris growth will be “more capacity”
and the Amyris potential to “accelerate products”. Meanwhile, “the
Brotas plant is running flat-out with farnesene production”, the
North Carolina facility too. The company has plans to double
capacity at Brotas and is speaking with potential collaborators
about potential expansions to increase capacity for 2017.

2. Cosmetics and personal care. Announced
multi-year, multi-million-dollar collaboration in cosmetic active
ingredients with Givaudan to engineer and produce cosmetic active
targets for global commercialization by Givaudan. Amyris sees this
partnership delivering an annual run rate $50M per year

3. Fragrance & flavors. Began
commercialization of novel fragrance product with Takasago
International Corporation. The company said that it had greatly
expanded in F&F inovel fragrance ingredients, partnered with 4
of the top 5 companies, and is “on track to become one of key
suppliers.”

4. Jet fuel. Jointly announced with Cathay
Pacific a two-year biojet agreement supporting continued strong
farnesene demand and the future of sustainable air travel; initial
flight on May 12, 2016 using the biojet blend was the longest
flight using a renewable jet fuel to date. This fuel is supplied
through the Amyris Total partnership that is dedicated to making
BioJet an industrial reality.

6. Janssen. Entered into research agreement with
commercial license option with Janssen Biotech, facilitated by
Johnson & Johnson Innovation, to use Amyris’s µPharm platform
for rapid integrated discovery and production of therapeutic
compounds thereby opening a new area of compounds previously not
accessible for new drug discovery. “We expect to sign one more
collaboration by the end of the year, ending at the high-end of
our range, to develop a library of natural and natural like of
therapeutic compounds, which nature has the potential to provide
and we have the ability to produce.”

7. Biogen. Amyris nnounced partnership with
Biogen, Inc. to develop alternative cell lines supporting
production of therapeutics, marking second major partnership in
biopharma market, which is now positioned to become Amyris’s
largest opportunity for collaborations. The Biogen partenrship is
the most exciting of all,” CEO John Melo said,. With it, Amyris he
said would make “ a transformative change to biopharma where
partner would be able to employ [Amyris biotechnology] instead of
using cells from mammals. Others have attempted and failed, but we
are positioned to deliver life saving therapeutics and make them
more widely available. This could be game changing for
biopharmaceuticals, and Biogen will fully fund the development.”

Reaction from the Street

Jeffrey Osborne at Cowen & Company wrote:

Amyris reported revenues of $9.6 mn, coming in below both Cowen
and Street estimates of $10.6 mn and $15.22 mn respectively due to
timing of product shipments and collaboration payments. About 90%
of its revenue for 2016 and about 70% of its revenue for 2017 [is]
committed.

Finally, the company expects continued growth from personal care
as well as a significant ramp up in health and industrial segments
in the second half, with ~33% coming from health, ~40% coming from
personal care, and the rest coming from industrials. We are taking
a wait and see approach given the uncertain pace of cost
reductions. $1.25 price target.

The Bottom Line

Amyris started out in so many ways as a biopharma technology with
the potential to radically transform, through synthetic biology,
the potential to produce at radically lowered cost, and much
bigger volume, a range of life-saving molecules. First was
artemisinin, that has now been manufactured at commercial volumes
for a couple of years now (primarily by Sanofi to date) as a
low-cost malarial treatment. It was this aspect of Amyris
technology that originally attracted the Bill & Melinda Gates
Foundation.

Now, Amyris is back to the future, as it were. After a long tour
through the potential for its technology to produce industrials,
which has had spotty success due to price point, and a nascent
effort to expand into personal care, which is small but promising
— the company now sees 33% of its immediate growth coming from the
health care sector.

Next in importance is personal care — but we also are fascinated
by the company potential in flavors & fragrances. In short, a
diversified portfolio — although the company is sharpening its
portfolio and selling off “non-core assets”, it is truly
delivering on its original vision to have a balanced and broad
product portfolio. Just farther up on the cost curve — generally
excluding much of the expected fuels volume – for now. That may
change as oil prices rebound.

The company says that with Gingko it will “take 70 products to
the world’s leading brands” — and the time is nigh for that to
unfold. Indeed, then the New Colossus will lift its lamp beside
the Golden Door.

August 10, 2016

TerraVia: No Going Back

Jim Lane

At the outset of his
historic Conquest, Cortés gathered the men and burned the boats. As TerraVia jettisons its break-out industrial product line
and completes the pivot to Food, what lies ahead in the New World?

Gromeko: They’ve shot the Czar. And all his
family. Oh, that’s a savage deed. What’s it for?Zhivago: It’s to show there’s no going back.Dr. Zhivago

In California, TerraVia (TVIA)
recorded a loss of $27.4M for Q2 2016 on revenues of $9.9M as the
company made milestone announcements in its transition from
industrials to nutrition including the divestment of an 80% stake
in Algenist to Tengram Capital Partners and the tapping of former
Mars North America chief Apu Mody as the company’s new
food-focused CEO.

Let’s take those in order.

The financial results

Thin sales, $9.9M vs last year’s $11.7M and the Street consensus
of $11.4M. Excluding Algenist sales, the revenues were $4.4M for
Q2 and the company did not break down further between industrials
and nutrition except to note that these reflected “reflecting
planned declines in industrial revenue partially offset by strong
growth in food revenue,” and that food platform sales tripled in
Q2 2016 compared to Q2 2015 and that Thrive “Culinary Algae Oil,
saw a three-fold increase in units sold in the quarter versus Q1
of this year.”

Losses narrowed, $27.4M on a GAPP basis and $21.2M on non-GAAP,
compared to $37,2M and $31,7M in the corresponding period last
year. “EBIT of ($17.1mn) significantly outperformed our ($25.9mn)
estimate, as the company delivered better than expected gross
margins, and operating expenses,” writes Cowen & Company’s
Jeffrey Osborne.

Market reaction

Osborne added: “The company announced mixed results for 2Q16.
Sale of Algenist allows the company to remain exposed to cosmetics
market, while allowing management to focus on its key end markets
going forward. We are encouraged by the announcement of new CEO
Apu Mody. 2016 revenue guidance (excluding Algenist)…remains
unchanged with management continuing to look for high double digit
revenue growth at a pro forma revenue assuming a ramp in food,
decline in industrials, flat to modest increase in R&D
programs and the 5x ramp at Moema. We are maintaining our $2.75
price target.”

Divesting Algenist

Just ahead of the Q2 earnings story was the divestment of
Algenist.

For those less familiar, Algenist was TerraVia’s breakthrough
product line, described these days as “a prestige beauty brand
that delivers anti-aging and color correcting innovation based on
a suite of TerraVia’s proprietary algae-based ingredients
including Alguronic Acid and microalgae oil. The brand has
achieved a global distribution footprint across 23 countries and
including major retail channels like Sephora, ULTA and QVC.”

The companies said that they have formed a partnership focused on
leveraging TerraVia’s innovative algae-based ingredient platform
and Tengram’s brand-building and investment expertise to pursue
compelling new opportunities in the beauty industry. Tengram will
also “contribute significant capital to the business to accelerate
broader commercialization.”

Overall, the company retains a 20% stake and will supply
ingredients to the divested company — no commentary at this time
on volume or timing of that. TerraVia will receive “approximately
$20 million” at closing in Q3. That’s roughly a $25M valuation on
the business, or 1.13X the current Q2 revenues.

For comparison purposes, the overall NASDAQ price-sales ratio is
3.373 and TerraVia’s ratio at the moment is 4.76 — so Algenist
divested at a significant discount to TVIA’s market cap.

Tengram? It’s a private equity firm, “A private equity firm
formed to acquire exceptional, highly recognizable, consumer
brands.” which has investments current in Laura Geller,
Differential Brands, Zanella, Luciano Barbera and a number of
other companies.

That Which Remains

Crucially, the Unilever arrangement is there, and cost-plus —
meaning that TerraVia will have a locked in cash flow to count on
as it explores opportunities in the food and nutrition space.
These are the AlgaPur oils, “including a more sustainable
alternative to palm oil for the specialty personal care market.”

The brands that TerraVia has at the moment? Revenue-wise, it’s
early-days but they include AlgaVia Protein-Rich Whole Algae,
AlgaVia Lipid-Rich Whole Algae, and AlgaWise Ultra Omega-9, and
Thrive Culinary Algae Oil, For the animal and aquaculture
nutrition markets, they have AlgaPrime DHA, an omega-3 fatty acid.

Mody appointed as new CEO

The new CEO of the re-positioned and re-christened TerraVia is
Apu Mody, most recently President of Mars Food America; previous
to that, six years at Del Monte Foods, ultimately as SVP and GM
for the $2.4B Consumer Products Division.

For the financial markets announce, Mody said:

“I’ve been passionate about
Healthy Living and have seen many substantial changes across the
industry. In my 25+ years in the food and CPG industry, nothing
I have seen comes close to the exciting potential of TerraVia. I
believe there are opportunities across the grocery store driven
by accelerating demand for plant based foods and nutrition. And
with TerraVia’s unique portfolio of ingredients that provide
better nutrition and sustainability with outstanding taste, the
Company is on the verge of great things.”

Mody’s commitment to, and analysis of, the opportunities in what
can be called the New Nutrition are no joke. Taking the helm at
TerraVia has been hush-hush, but Mody has been as outspoken and as
visible as anyone in terms of seeing a transition from the old
food company model to the New Nutrition. And the value of small
companies in that effort.

The Bottom Line

TerraVia made a big turn this week with Mody arriving and
Algenist departing. A quibble over Algenist’s exit price aside,
the company is staking its future in the New Nutrition and success
therein — no doubt about it.

But here’s the thing. Mody in remarks elsewhere this season has
noted that that gap in the food sector that established companies
are struggling with is less about technology, or ideas. They have
manufacturing expertise, they have distribution. They do line
extensions well, they change ingredients and re-formulate well.
Big Food companies are weak on brands that
appeal to the New Consumer. That’s the chink in the food sector’s
armor.

At the end of the day, TerraVia is not yet a brand company. The
Algenist deal frames it: Tengram Capital Partners is infusing
capital and “brand-building and investment expertise.” Incoming
CEO Apu Mody inherits a company built as an industrial
manufacturing play. It has been about getting developing new oils,
getting technology to work at scale, and getting costs down.

What TerraVia has been brilliant at is developing new ingredient
options. And the market needs new ingredients, for sure. But
TerraVia either has to formulate new products, and develop brand
traction, or count on someone else.

Of the roads forward, the first route looks tough. That means
building a consumer marketing machine of real prowess inside a
small company where dollars are scarce.

Which brings us to the other road — getting someone else to do
the formulations. First, there’s the urgency problem. The company
you engage with might dither. Elevance could write a book on it.
The marketing partner could fail, or dump you and go it alone.
Happened to the old Solazyme in its partnership with Roquette.

So, leaving the brand work to others has its own share of
heartbreaks. If TerraVia could really push the needle on brand
creation, the company would be a high-value farm club for the Big
Food majors.

For now, it’s an ingredient manufacturer of real distinction, in
a market that hasn’t yet decided whether it will adopt those
ingredients. And the market is changing, as
Mody has noted elsewhere, at a frenetic pace and in epic
ways. That’s a challenge for smaller companies, and investors feel
the peril.

And so, TerraVia sets off on its journey into the New Nutrition,
which is replete with brassy companies based in bold technological
advances and warrior pride in the certainty of their own
ascendancy. Somewhere Friedrich Nietzsche must be smiling, with a
copy of Also Sprach Zarathustra in his hands. The übermensch
have arrived, grounded in biotechnology, risen above the limits
placed by evolution and DNA in a sector as fundamental as food.

TerraVia calls algae “the mother of all foods, the original
superfood“. There it is, the überessen from überalgae,
and all in the city of Uber Technologies. But how many überventures
the market could sustainably support, on that subject even
Nietzsche was silent.

August 08, 2016

BioAmber: Fingers Crossed

by Debra Fiakas CFA

Plastic is everywhere - our homes and offices, the cars
we drive, our personal items, food containers and even our dental
fillings. Plastic is also toxic. Dioxins, BPA (bisphenol
A) and PCBs (polychlorinated biphenyl), both of which are critical
chemicals in plastics, have been identified as endocrine disruptors,
upsetting hormonal balance, triggering the growth of tumors and
interfering with sexual development in fetuses.

Even people who deliberately avoid plastics are exposed to the
toxicity. For example, we ingest BPA when eating fish that
lived in waters contaminated with plastics. Remember that
‘island’ of plastic the size of Texas floating in the Pacific
Ocean? It is showing up in bits and pieces on your plate.

Thus it seems the need to
replace plastic with renewable materials is of dire
importance. This is why BioAmber (BIOA:
NYSE) has remained on the list of companies to watch.
Bio-succinic acid and butanediol are BioAmber’s
specialty. Both are intermediate chemicals that are used
widely to make final products such as polymer fibers for clothes,
food, surfactants, resins, lacquers, coatings, and
detergents. Bio-succinic acid alone represents a $4
billion market opportunity, while bioplastics and elastomers offer
another $5.5 billion in demand.
Unfortunately, even with outsized markets the biochemical business
has been challenging. Significant innovation is required to
create a drop-in renewable substitute for low-cost petroleum-based
biochemicals. BioAmber is striving to be cost competitive with
petroleum-based succinic acid even at crude oil prices as low as $30
per barrel. The BioAmber process involves fermentation
of sugars using specialized yeasts licensed from Cargill. The
company has applied its expertise and knowhow of industrial scale
biotechnology to reduce the required sugar input, thereby reducing
the overall cost of production.

Nonetheless, in five years, the company has yet to achieve
profitability, although revenue has been building. In 2015,
the company reported $2.2 million in total sales and a net loss of
$41.2 million. When the company reports financial results for
the June 2016, on August 9th no one expects profits even if sales
activity has increased.

Late last year BioAmber did start commercial operations in its
Sarnia, Ontario facility, which has capacity to produce 30,000
metric tons of bio-succinic acid each year. Two years ago
Vinmar, a distributor based in Houston, Texas, signed an off-take
agreement for 10,000 metric tons per year for 15 years. Vinmar
is apparently so keen on BioAmber’s potential, it has signed
additional off-take agreements totaling 300,000 metric tons for more
bio-succinic acid as well as other bio-based industrial chemicals
that could be produced at plants now still in the planning stages.

In the meantime, BioAmber operations need cash. Over $32
million is cash was needed to support operations during 2015, a
dramatic increase over previous years. BioAmber uses a
combination of stock and debt to finance its product development and
commercialization activities. By the end of March 2016, the
company had raised a total of $259 million in equity capital since
inception in 2008, and had $40 million in debt on the balance
sheet.

In the first three months of 2016, BioAmber and one of its
subsidiaries both issued shares, raising another $29.5 million in
new capital. At the end of March 2016, the last time the
company reported asset figures there was only $14.1 million in total
cash left on the balance sheet. Going through cash at that
pace, shareholders must have their fingers cross that commercial
success is just around the corner. Personally, I am hoping for
plastic-free fish.

Debra Fiakas is the Managing
Director of Crystal Equity
Research, an alternative
research resource on small capitalization companies in selected
industries.

Neither the author of the Small Cap
Strategist web log,
Crystal Equity Research nor its affiliates have a beneficial
interest in the companies mentioned herein.

July 20, 2016

American Refining Group Joins Amyris And Cosan In Renewable Base Oil JV

Jim Lane
IIn California, American Refining Group has committed to a 33.3%
equity investment into Novvi , a joint venture of Amyris (AMRS)
and Cosan (CZZ).
Both Amyris and Cosan will continue to hold share ownership stakes
in Novvi, together with ARG.

It’s not a tiny market by any means.

The global markets for base oils and lubricants, are expected to
reach $42 billion and $70 billion in size, respectively, by 2020,
according to Amyris.

For ARG: Why Novvi, why now?

Think novel performance. It goes in two directions. First,
there’s low-carbon performance — customers want sustainable
solutions. Then, there’s product performance — customers are
looking for increased durability in high-performance base stocks
and lubricants. The new partners said that “a novel,
performance-based, technology platform that couples
segment-specific, top-tier performance with sustainable, bio-based
feedstocks delivers against the needs of the industry today and in
the future.”

For Amyris: why ARG, why now?

“This agreement is the first of several we expect this year where
we are divesting from non-core marketing activity,” said Amyris
CEO John Melo, “while remaining key technology developers and
producers of high performance chemistry.”

Getting off a high-carbon product lifestyle

Those who follow consumer brand trends or discussions thereof, of
who have run the Paris Climate Agreement numbers on a hand
calculator, can tell you that carbon transition may be slow, it
may be incremental, but it is coming and there is no turning back.
The questions in low-carbon transition, today, are of speed,
method, and which sectors go first.

Two options, generally. One is a mandate-led transition, like
light bulbs, power and road fuels. The other is a brand-led
transition, as happens with plastics, jet fuels and clothing.
Amyris’ No Compromise branding encourage transitions not yet
subject to mandates for high-margin, smaller-volume markets like
flavors, fragrances nd lubricants.

Why No Compromise, instead of Less Carbon? Take, for example, a
transition many are familiar with from the health space, reducing
sugars out of a diet. Doesn’t change the need for finished foods
for which sugar is a key ingredient. We might try the low-caloric
sugars, such as Splenda or Equal. Generally, performance is
incredibly important to us, and we’d like to get the same
performance at the same price. But sweet must be sweet. Which is
to say, the first step is performance.

It would be very intriguing to see branding that communicates hard
targets on carbon transition — as well as they communicate
performance targets through messaging like “No Compormise”. In the
fuels sector, we’ve seen the emergence of the below50
brand, that communicates a hard target of 50 percent carbon
reduction.

These are branding strategies that will drive faster transition
and better results for the companies in the nearer term. If
consumers opt for “higher carbon reduction numbers” like they opt
for higher-performance sunscreen (see our chart below, on how
higher SPF sunscreens are growing much faster than the low-SPFs) —
why, that intensifies the speed of the carbon transition.

What does ARG do?

American Refining Group converts hydrocarbon feedstocks into
high-quality waxes, lubricant base oils, gasoline and fuels, and
specialty products.ARG’s Bradford, Pennsylvania refinery, founded
in 1881, is the oldest continuously operating refinery in North
America. Base oils are blended with additives to make the
engine oils and lubricants sold on the market today.

Reaction from the partners

“Our launch of Novvi’s synthetic base oils has been embraced by
manufacturers in a range of top-tier lubricant segments, across
both automotive and industrial applications,” stated Jeff Brown,
Novvi LLC’s CEO. “Our partnership with American Refining Group
will help accelerate our growth by providing the necessary
resources to ensure manufacturing, supply, and delivery
capabilities to scale our business for volume and to meet customer
expectations.”

“ARG’s Bradford refinery was built on innovation and market
leadership in 1881, and this is an opportunity for ARG to lead the
market once again — this time with a renewable product,” stated
ARG CEO Tim Brown. “The potential benefits cut across our
base oil, finished lubricants, solvents, and drilling fluids
businesses.”

Comments from industry observers

“Renewable oils offer customization of specs and performance that
differentiate them from conventionally produced oils,” said Pavel
Molchanov, senior vice president and equity research analyst at
Raymond James. “A renewable oil that competes on performance and
price is well positioned for the multibillion dollar lubricant and
base oils market.”

“If a company could make the same quality PAO with a different
feedstock, they could dramatically change the market. Customers
would run to them,” said Joe Rousmaniere, director of business
development at Chemlube International.

The Novvi backstory

Last summer we reported that Novvi
unveiled two new 100 percent renewable base oil products, a
100 percent renewable polyalphaolefin (PAO) Group IV and a 100
percent renewable version of its NovaSpec Group III+ base oil.
Both will be manufactured at the company’s production facility in
Houston. Specifically, according to Transparency Market Research,
Group IV & V Lubricants (PAO, PAG and Esters) Market – Global
Industry Analysis, Size, Share, Trends and Forecast, 2012 – 2018,”
the Group IV & V lubricants demand was 624.6 kilo tons in 2011
and is expected to reach 752.9 kilo tons in 2018, growing at a
CAGR of 2.76% from 2013 to 2018.

Who’s the customer?

“We work with customer-facing strategic partners in both, the
base oil business and the finished lubricant side,” Novvi CEO Jeff
Brown told The DIgest. “We’re doing the manufacturing now but we
have a variety of partnership structures with customers, and we
will scale production through strategic industry partnerships.”

July 05, 2016

Amyris: Biochemical Bargain?

Industrial bio-chemical developer Amyris,
Inc. (AMRS:
Nasdaq) has been in the headlines recently - some
pointing to solid fundamental progress, others ‘not so much.’
Amyris recently announced a new relationship with Givaudan (GIVN: VX), a
supplier of active ingredients for cosmetics. The two have
agreed to collaborate in research and development on proprietary
fragrances. Earlier this month Amyris announced the launch by Takasago
International Corporation (TYO: 4914) of a new fragrance
created with Amyris’ technology. Cosmetics and fragrances present
large market opportunities and the strength of demand for personal
care products supports strong profit margins. The
relationships are likely to lead to incremental sales for Amyris.
Yet it was just a week ago that Amyris announced the company was
crosswise with Nasdaq. Apparently, the bid price for AMRS
shares has been below $1.00 for 30 consecutive trading sessions,
violating a minimum listing requirement for the Nasdaq Global Select
Market where AMRS trades. There is no reason to panic just
yet. The company has six months to come into compliance.
Still the notice from Nasdaq puts a spotlight on the struggle that
developing companies face - trying to get established in
highly competitive markets for their products and technology while
clinging to whatever access to capital they might establish.

Amyris has been able to build up revenue to $34.1 million in the
most recently reported twelve months ending March 2016. Of
course, the company is still operating with a deep loss as research
and development efforts still eclipse revenue. The net loss
during that period was $184.9 million or $1.26 per share. More
importantly the company used $105.6 million in cash resources during
that period to support operations.
Since cash on the balance sheet was only $9.3 million at the end of
March 2016, there is some real concern for Amryis’ future.
Granted the company executed a small private placement in May 2016,
bringing in about $15 million in new capital net of fees. That
has provided some breathing room for the company. Then, if
Amyris is closer to selling its Biofene-branded farnesene chemical,
the future might not see as bleak as suggested by the balance
sheet. Farnesene is a renewable hydrocarbon chemical that is
the building block for a range of products such as cosmetics,
detergents and lubricants. It shows promise for high-volume
applications and large market opportunities. In May 2016, the
company announced a new relationship with CJ CheilJedang Corporation
(097950: KS), a Korean contract manufacturer, to provide
high volume production of farnesene for Amyris. Unfortunately,
it will take until at least the third quarter for the two to hammer
out a definitive agreement, which suggests that revenue is not
likely until well into 2017.

Priced at about $0.40 per share, AMRS appears fairly priced as an
option on management’s ability to bring together the right elements
of technology, commercial products and paying customers. Until
more commercial relationships are in place or the existing
relationships begin producing revenue, there is probably no
justification for a higher price.

Debra Fiakas is the Managing
Director of Crystal Equity
Research, an alternative
research resource on small capitalization companies in selected
industries.

Neither the author of the Small Cap
Strategist web log,
Crystal Equity Research nor its affiliates have a beneficial
interest in the companies mentioned herein.

June 29, 2016

Amryris: Zombie With Attitude

Jim Lane

Zombies with attitude. New partnerships for making magic
molecules and exploitin’ the heck out of ’em.

These days, nothing in Hollywood beats a great zombie movie, more
than 50 have been released in recent years. Zombies rise from the
dead, and change everything around them. It’s not always pretty,
or predictable, but they’re a disruptive force.

Well, Amyris (AMRS)
is proving to be a zombie story these days — starting with being
labeled a “zombie company” by The Motley Fool. TMF
writes:

Amyris was a pioneering industrial
biotech that went from darling of the field to a company now
trading well below $1 per share thanks to a lack of market
focus, a suffocating debt load, and management hubris. It’s
likely on its way to bankruptcy or a much worse fate: becoming a
zombie company that’s impossible to resurrect yet refuses to
die. It also serves as a textbook case of the first-mover
disadvantage.

Like a clip out of Thriller or Abraham Lincoln vs
Zombies, the zombies appear to be awakening. In the past 24
hours, two signature announces put Amyris well outside of what
would normally be considered the industrial biotech Zombieland.

The Givaudan deal

First, Amyris announced a collaboration with Givaudan (SIX:GIVN),
a leading global flavors and fragrances company. The two companies
have been engaged in the research and development of proprietary
fragrance ingredients for several years, and the significantly
expanded partnership reinforces the diversity and value of
Amyris’s R&D platform and manufacturing capabilities to
customers demanding high performance, cultured ingredients.

During the multiyear collaboration, Amyris will use its strain
engineering platform to design cosmetic active targets, and scale
them up for global commercialization at Amyris’s manufacturing
facility in Brotas, Brazil. The companies anticipate the launch of
the target products in the coming years will demonstrate
significant performance, cost and sustainability advantages over
existing ingredients.

More about Givaudan

The “global leader in flavors and fragrances”, its cosmetic
portfolio comes under the Fragrances Division and earlier this
spring was re-branded as Active Beauty. That’s where the
Amyris-Givaudan partnership is focused.

The company explained it this way recently:

“Following the acquisition of
French bio-sourced active cosmetic ingredients company Soliance
in 2014 and science-based cosmetic ingredients firm Induchem in
2015, Givaudan now offers customers and consumers around the
world a range of innovative products and technology under one
single identity, Active Beauty. Establishing one unified
identity is a key step towards our 2020 ambition to make
Givaudan a significant player in the fast-growing active
cosmetics business. Our customers remain at the heart of what we
do and the new identity will enhance the proximity of our
business relationship with customers and consumers alike.”

Key to all this? Well, it’s cosmetics, so there’s marketing to be
done. But Maurizio Volpi, President of Givaudan’s Fragrance
Division pointed to a “a strong R&D…platform to drive future
development and innovation in the active cosmetics space.”

The Gingko Partnership

Ginkgo Bioworks, the organism company, announced
a new partnership with Amyris, the industrial bioscience company.
The partnership will enable the companies to develop products more
efficiently, achieve scale, and accelerate time to market.

As part of the deal, Ginkgo Bioworks will expand Amyris’ strain
engineering capability via access to its world-class foundry;
Amyris will be responsible for bringing products to scale.
Together, the two companies have a portfolio of more than 70
products under contract for delivery to the world’s leading brands
across industrial, health and personal care markets.

Amyris has the leading track record in the industry of scaling
engineered organisms and delivering breakthrough products to its
customers. The company’s fermentation facility in Brazil is highly
advantageous for the production of cultured ingredients such as
flavors, fragrances, nutritional ingredients and sweeteners.
Together, the two companies expect to deliver more than 20 new
products over the next three years.

Ginkgo is currently building Bioworks2, a next-generation
automated foundry where Ginkgo’s organism engineers can develop
new designs at massive scale. The 25,000 square-foot automated
facility is used to build and test prototypes of engineered
microbes. It is the company’s second, representing a technology
leap from Bioworks1, which opened in early 2015.

The bottom line

Zombie company? As The Zombies themselves put it in their
anthemic 1964 hit, “Please don’t bother trying to find her, She’s
not there.” Amyris struggled, but look at the deal flow. And the
company continues to guide that it will reach revenues of $90
million -$105 million in 2016. And, a planned sale of “ non-core
assets expected to generate approximately $40 million-$60 million
in net proceeds.” We’ll have to see what those non-core assets
exactly are.

$100M in revenues — that would be a milestone indeed. As The
Zombies put it in 1968, “Now we’re there and we’ve
only just begun /This will be our year / took a long time to
come.”

Reaction from the stakeholders

And, there are some ‘pleased and delighteds’ to share from the
principals.

“We are very pleased with our ongoing partnership with Amyris. As
our company continues to look for innovative and sustainable
solutions to availability and cost challenges, we are expanding
the relationship to apply Amyris’s technology to a whole new
field,” said Maurizio Volpi, President of Givaudan’s Fragrance
Division.

“Ginkgo and Amyris working together sets the gold standard for
the industrial biotechnology industry,” said Jason Kelly, CEO of
Ginkgo Bioworks. “Each company was seeing more customer demand for
partnerships than we could handle individually. By sharing our
assets and experience we can offer more customers access to the
industry-leading technology platform.”

“We are excited to be working with Givaudan to solve supply
challenges and deliver sustainable innovation in cosmetic actives.
We are very pleased with the Givaudan commitment to innovation and
its leadership in delivering breakthrough advancements in Active
Cosmetics,” said John Melo, Amyris President & Chief Executive
Officer. ” He added with respect to Ginkgo, ““Our combined
companies have the leading product and customer portfolio and we
realized a need to find a faster and more predictable approach to
deliver products to these customers and markets,” said John Melo,
CEO of Amyris. “Amyris has successfully commercialized five
products from highly engineered molecules, disrupting markets from
skin care, fragrances, to industrial lubricants, tires and jet
fuel. The flood of new products in the coming years will prove
that industrial biotechnology’s time has arrived.”

May 16, 2016

From Fuel To Fudge

by Debra Fiakas CFA

This week the last reminder of the renewable fuels business that was
once
called Solazyme will be gone. The old Solazyme has
abandoned the goal of producing renewable fuels using the oils from
algae. Instead, under a new name TerraVia, the company is directing
its algae cultivation and harvesting knowhow toward growing edible
algae for food and personal care products. To make the change
complete the old stock symbol ‘SYZM’ gives way this week to a new
trading symbol ‘TVIA.’

No doubt there is more than just a little hope in Terra Via’s
boardroom that investors will forget the many troubled years trying
to wring diesel fuel from algae. According to the last annual
report, Solazyme took in $585.7 million in equity capital to
bankroll its algae-to-fuel tank business plan. There is also
$202.5 million in convertible debt that will need to be paid off or
converted. Unfortunately, its operations reported $609.9 million in
losses since inception, leaving the company with a $46.5 million
deficit. It is going to take quite a bit of fancy algal fudge
to fill that gap.

Of course, there are numerous food products that could be developed
based on nutritionally rich algae. Algae is about 50% protein
has about as much protein as rice or peas. In September 2015,
the company introduced an algae protein product called AlgaVia that
contains 64% protein along with other good-for-you elements such as
fiber and amino acids. Microalgae are used to convert sugars
into oils and proteins. The mature microalgae are then
harvested, washed, dried and milled into a fine powder. The
company touts the value of the powder for ready-to-drink beverages,
sauces, or baked goods. A cracker, for example, made with
AlgaVia could have twice the amount of protein.

In early May 2016, TerraVia announced a deal with Bunge Ltd. (BG:
NYSE) to launch a line of sustainable specialty feed
ingredients. The joint venture is going after the aquaculture
market first with a whole algae product called AlgaPrime DHA.
A supply agreement has already been worked out with a large
aquaculture feed supplier, but Terra Via has kept quiet on the
terms. However, the company did suggest that the supplier
would begin lacing its fish feed with AlgaPrime beginning yet in
2016.

Make no mistake TerraVia has not given up on commercial grade algal
oils. Unilever has chosen the company’s oils for its Lux
soap. Algal oils have great public relations value. Unilever’s
Lux is vegan and petroleum-free, providing Unilever with
marketing value to reposition this time honored product.

TerraVia also has its own personal care product line. The
cosmetics retailer Sephora S.A.
is distributing TerraVia’s
Algenist line of anti-aging and color correcting
products. QVC with its multimedia marketing platform and ULTA Beauty stores also sell the
Algenist line.
There is also a strong sustainability argument to make for tapping
algae for use in the human and animal food complex. The large
quantities of land, water and fertilizer needed for field crops are
unnecessary for algae cultivation. Algae can be grown in what
many call ‘reactors’ with a much smaller footprint than are required
to harvest the equivalent amount of protein from grain crops.
(Personally, I hope edible algae producers come to their senses and
change this name as well. Who really wants to eat something
from a reactor?)

The enthusiastic case for algae does not appear to have been a
comfort for TerraVia investors disillusioned over the company’s
continued losses. The stock has steadily traded down from a
52-week high of $3.73 set in May 2015. Of course, some
shareholders might remember the company’s initial public offering in
2011, after which the stock traded up to an all-time high of
$26.31.

So far the Unilever deal may offer the most promise for significant
revenue. TerraVia has agreed to supply at least 10,000 metric tons
of algal oil for use in Unilever’s Lux soap and other personal care
products. Some have valued the supply deal at $200 million
over the next few years. The key to whether the shipments will
generate a profit for TerraVia hinges on products yields.
TerraVia plans to produce the algal oil for Unilever in a facility
in Brazil constructed jointly with Bunge Global Innovation next to
Bunge’s sugar cane processing plant. After beginning
construction in 2012, the plant came on line in 2014 and reach full
capacity in 2105.

Bunge provides the sugar-cane based sucrose for TerraVia’s hungry
algae. Corn feedstock might be an alternative. Thus
production costs for the company’s algal oils are likely to be
highly dependent upon sugar and corn commodities. Sugar prices
have recovered from lows set in 2015, but still remain well below
highs set in early 2011. TerraVia’s production for Unilever
may get off to good start with relatively economical sugar ‘feed’
for its algae. Coupled with production of algae for the
AlgalPrime DHA product that TerraVia is producing in another joint
venture with Bunge, TerraVia may be moving nearer a profitable
production level.

It is not likely that shareholders will be long distracted by name
changes. Solazyme or TerraVia. Fuel or fudge. Like
always shareholders are looking for performance. The next
financial reports from TerraVia may need to offer clear evidence of
commercial progress.

Debra Fiakas is the Managing
Director of Crystal Equity
Research, an alternative
research resource on small capitalization companies in selected
industries.

Neither the author of the Small Cap
Strategist web log,
Crystal Equity Research nor its affiliates have a beneficial
interest in the companies mentioned herein.

April 29, 2016

Amyris Inks $100M+ Biofene Supply Pact

In California, the Eco-Emirs of Emeryville, Amyris (AMRS)
executed a five year Biofene supply agreement with a global
nutraceuticals company.

Upping the ante from January

This new, long-term agreement replaces the parties’ one-year
purchase agreement, which was previously announced on January 4,
2016. More
on that deal here.

Under the new supply agreement, the mystery customer has agreed
to a larger Biofene purchase in 2016 with an expected revenue
contribution of approximately $9 million and to minimum annual
purchase commitments in each of the remaining years of the
agreement.

In addition, under the new agreement, Amyris is entitled to a
quarterly value-share arrangement on the sales of the customer’s
product made from the purchased Biofene. Amyris expects total
revenue from the five-year agreement to be more than $100 million.
In year-five of the supply agreement term, the agreement is
projected to generate approximately $40 million of annual revenue,
which Amyris expects will be renewed at that level in subsequent
years.

“We are experiencing significant growth in demand for our Biofene
and Biofene-derivative applications from large markets such as
tires, industrial lubricants, solvents, and nutraceuticals. This
demand growth is accelerating our mission to make renewable
products mainstream while making our company sustainable.”

April 20, 2016

Biobased’s Hot Babes Hook Up

Comet, BioAmber in big cellulosic sugar partnership

Jim Lane

In Ontario, Comet Biorefining has signed an off-take agreement with
bio-succinic acid producer BioAmber (BIOA)
for cellulosic dextrose from Comet’s upcoming first commercial plant
in Sarnia, Ontario. The dextrose will be produced from agricultural
residues using Comet’s innovative technology.

The agreement also provides increasing shape to the development
of an biobased industrial cluster in the Sarnia region of Ontario
— a corn-growing region where farmers will provide agricultural
residues which will be processed into industrial-grade cellulosic
dextrose by Comet. In turn, BioAmber will be the offtake partner
for those sugars, and use its own proprietary technology to
produce biobased succinic acid and high-value derivative chemicals
including 1,4-butanediol (BDO) and tetrahydrofuran (THF).

The off-take agreement also includes provisions for Comet to
supply dextrose to future BioAmber manufacturing facilities and
provides BioAmber with certain exclusive rights in the fields of
succinic acid, BDO and THF. BioAmber itself is the subject of an
historic set of off-take agreements, including those with Mitsui
and Vinmar for global distribution of its renewable chemicals.

The partners also noted that Comet’s facilities can be built on a
smaller scale enabling greater flexibility to locate production
closer to biomass supplies and lower a region’s greenhouse gas
footprint.

BioAmber investing in Comet

The companies disclosed that BioAmber had provided an equity
investment in Comet in 2015 and its CEO Jean-Francois Huc is now
joining Comet’s board of directors.

Where’s the feedstock?

The off-take agreement is the culmination of development work
performed by Comet and BioAmber as part of BioIndustrial
Innovation Canada’s recently completed cellulosic sugar study.

The one remaining question in the supply chain from cornfield to
customer is how the supply-chain will be managed to assemble
agricultural residues for Comet’s process.

Questions abound.

How these will be shipped, stored, avoid pre-fermentation or fire
incidents that have been experienced at other cellulosic depots.
How the payments will be made to growers, how the logistics of
delivery will be arranged. How indeed the residues will be cleaned
of dirt, dust, tennis shoes, rakes, combine harvester parts, metal
scrap and other items that have come into cellulosic refineries
from the field. Whether the bales will be square or round, how
they will be tied and untied, where they will be stored from
harvest to delivery to the factory gate.

How will the material be pre-treated at scale, how will it be
chopped down into fragments small enough for the process to
handle, at a rate and cost commensurate with the economics of the
overall project?

How the greenhouse gas emissions will be calculated and audited,
and how the process will be certified for sustainability — for
those chemical off-takers of BioAmber’s interested in certifying
to their own customers that these new materials are contributing
to a low-carbon society, and by how much?

All examples of standard questions that companies must answer,
for themselves or in partnership with logistics companies. It’s
not the same as the corn or cane economy — not by the longest
shot, and though Comet has doubtless with its partners in Sarnia
and in the BioIndustrial Innovation Canada roundtables worked much
of this out, we’ll all be awaiting more detail.

Front-end troubles have plagued the commissioning cycles of
several cellulosic biorefineries — though they are not only making
sugars but fermenting them into ethanol. So, these questions
—although doubtless well advanced in terms of answers — are
relevant and pertinent.

We expect that some of them may be answered as soon as the first
week of June, when Comet Biorefining chairman Andrew Richard
addresses ABLC Feedstocks 2016. Additionally, Sandy Marshall,
board chairman of Bioindustrial Innovation Canada, will make an
address.

Marshall will be presenting on two studies. The first: setting up
the corn stover value chain from the farm to the mill for the
Comet project in Sarnia. Cost, quality, storing, delivery, and
more. The second: on establishing a farm Coop, the Cellulosic
Sugar Producers Co-op. Sandy worked closely with the BIC team on
completing these studies and has been involved in numerous farmer
meetings as well.

Reaction from the principals

Andrew Richard, Chairman and Founder of Comet Biorefining, said,
“Having off-take agreements in place with bioeconomy leaders like
BioAmber demonstrates the market’s confidence in our technology
and products. As a trusted feedstock partner, Comet is helping to
build a successful bioeconomy hub in Sarnia, Ontario, close to
plentiful biomass. We are extremely pleased to welcome
Jean-Francois Huc as a member of our board.”

Jean-Francois Huc, BioAmber CEO commented, “We have tested many
second generation sugars and Comet offers dextrose that is on par
with dextrose from corn, both in terms of quality and price. Comet
has proven this by operating a large demonstration plant in Italy,
setting them apart from others. Comet has also put together a
unique value chain in Southwestern Ontario, bringing together
farmers, technology, off-takers and government. We are looking
forward to participating in their exciting growth prospects.”

March 21, 2016

Three Renewables Companies: No Pain, No Gain

Jim Lane

In California and Canada this week, BioAmber (BIOA),
Pacific Ethanol (PEIX)
and the
former Solazyme (SZYM)
reported their Q4 and year-end results, providing between them a
fascinating look at the evolution in the fuels, renewable chemicals,
specialty products and nutrition that make up the advanced
bioeconomy.

In advanced nutrition

The most spectacular news of the week belonged to TerraVia
(formerly SolaZyme), which landed a 5-year, $200 million
“baseload” offtake deal with Unilever, which provides a huge lift
for investors and validates the economics and performance of the
company’s first commercial plant, which it operates in a Bunge JV
in Moema, Brazil. “Importantly, this agreement was structured at
variable cost-plus pricing,” noted Cowen & Company equity
analyst Jeffrey Osborne, “enabling this deal to be cash flow
positive at the plant level. We expect more deals such as this to
be signed in the coming quarters, potentially offering greater
visibility for TerraVia’s future vol. production.

The company stunned the market also last week with news of new
investors and a re-branding of the company as TerraVia, to
emphasize its decision to focus on nutrition and personal care,
leaving “industrials” to be spun off at a later date. The Unilever
deal, which has been five years or so in the making, which provide
wind in the sails for the company, which hasn’t yet announced a
fate for its Algenist health & beauty products business but
otherwise has clarified its focus going forward around products
such as AlgaVia whole flour and its pure food oils opportunities.

As we tipped in our coverage earlier this week of the name
change, the company’s progress in industrials had stalled the face
of low oil prices, and Q4 revenue was $10.4M compared with $14.5M
in Q4 2014. The company has narrowed its net loss to $26.1M in Q4
vs $35.5M in Q4 2014, but the company had expected to be further
along in industrial by now, and investors had wearied, with stock
prices dropping below $2.

Cowen & Company’s Jeffrey Osborne wrote: “Algae is the next
wave in protein ingredients and Solazyme, through is new TerraVia
branding, is positioning itself to take advantage of higher margin
and more stable applications. The company will predominantly focus
on four main areas; food ingredients through its AlgaVia and
AlgaWises brands, consumer foods through Thrive, specialty through
personal care products with brands like AlgaPur, and through a yet
unannounced animal nutrition product. Consequently, Solazyme will
be de-emphasizing Encapso, fuels, and lubricants, which comprise
the industrial segment of the business.

“We are very constructive on Solazyme’s strategic focus on high
value applications of algae strains. However, given the
de-emphasis on industrials and concentration on food, nutrients,
and specialty ingredients we still see 2016 as a transitional
year. The agreement with Unilever provides a meaningful volume
baseload for its Moema JV facility with Bunge. As capacity and
yields at this facility improve, it could accelerate milestones
and allow for JV revenue to be recognized earlier than
anticipated. While the exact timing of this event is inherently
difficult to time we believe it could serve as a very material
catalyst for shares of Solazyme.”

Over in renewable chemicals

For some time, investors and industry experts have pointed to
succinic acid as a new intermediate for chemicals and an area
where green renewable chemicals can shine. Succinic, say chemical
experts, offers new options to make novel, high-performing
chemicals that are not as easy or as affordable to maker from the
traditional platform chemicals of the petrochemical refinery:
Ethylene, Propylene, Butadiene, Benzene, Xylene, Toluene,
Methanol.

The biobased advantage in this case? Organics acids like succinic
acid contain oxygen, which biomass also contains but petroleum
does not. It’s an extra processing step to oxygenate a
petroleum-based molecule. So, though biomass starts at a
disadvantage in making hydrocarbons, it has an advantage in
organic acids — where biology can give us one-step methods of
making a target molecule from sugar or plant oils.

Leading the succinic charge has been BioAmber, which concluded a
successful IPO and is making and shipping succinic acid out of
Sarnia, Ontario. To date, sales have been at the “emerging company
level”, reaching $1.1M for Q4 , including initial shipments to
PTTMCC Biochem, an important off-taker requiring high purity
succinic acid to make bioplastic. However, more than 100 companies
tested and qualified the bio-succinic acid produced in Sarnia, and
in recent weeks Mitsui & Co. invested $CDN25 million in the
Sarnia joint venture, increasing its equity stake from 30% to 40%
and committing to play a bigger role in commercialization.

Investors have been encouraged by an average selling price for Q4
2015 above the $2,000 / MT guidance, despite low oil prices.
Overall, 2015 revenues were up to $2.2M from $1.5M in 2014, and
net loss for the year narrowed to $37.2M from $48.5M in 2014.
R&D costs have increased to $20.3 million from $15.2 million
in 2015, driven primarily by an increase in expenses related to
the commissioning and start-up of the Sarnia plant.

The company’s first commercial plant opened in August at a cost
of $141.5M, and volumes specified in signed take-or-pay and sales
agreements exceed annual production capacity. Should the company
be able to maintain a $2,000 per ton price and reach nameplate
capacity of 30,000 tons at Sarnia — well, it’s not hard to get out
a calculator and reach $60M in annual revenues. 2016 could well be
a mighty year as the company begins to ramp up production.

In conventional biofuels, Pacific Ethanol

In Oregon, Pacific Ethanol reported Q4 revenues of $376.8 million
for the fourth quarter of 2015, an increase of 47% when compared
to $256.2 million for Q4 2014, and operating income for the Q4
2015 of $0.5 million, compared to $13.6 million for Q4 2014. Net
loss for Q4 was $1.1 million compared to $11.9 million for Q4
2014. Cash and cash equivalents were $52.7 million at December 31,
2015, compared to $62.1 million at December 31, 2014. For 2015 as
a whole, the company reported a net loss of $20.1M compared to
$19.4M for 2014.

Neil Koehler, president and CEO, stated: “In 2015, we made
significant progress in positioning the company for long-term
growth. We completed our acquisition of Aventine in July, more
than doubling our production capacity. Our expanded footprint is
demonstrating operating benefits. The diversification of
geography, technology, feedstocks and products strengthens our
performance across margin cycles and provides a strong platform
for growth.

Look for less production in Q1 2016.

Koehler notes, “we are moderating production levels to match
supply and demand. While the demand for ethanol continues to grow,
current industry ethanol inventories remain high. We are confident
that the fundamentals of ethanol as a valuable source of octane
and carbon reductions will support continued growth in demand and
improved production margins.”

Cowen & Co’s Jeffrey Osborne wrote: Pacific Ethanol reported
revenue below estimates but beat on earnings. The oversupply theme
of 2015 continues to remain the biggest concern going forward.
While management is hopeful that the end is near due to growing
demand, they are planning for the trend to continue in the near to
mid term by reducing capacity..our implied equity value reflects a
price target of $10.00 per share.”

What do these three companies share, and where do they differ?

The search for volume is a connecting point.

In the case of Pacific Ethanol, they’re producing at scale but
moderating production — as we expect other first-gen producers may
do — to shore up the fuel price. Demand has grown for ethanol with
rising vehicle miles and small upticks in Renewable Fuel Standard
volumes and growing exports, but not as fast as supply has grown.
Bottom line, lots of established customers, and more of a case of
right-sizing the production for the margins.

In the case of BioAmber, it’s a matter up ramp-up on production
without sacrificing price — as the $2000 per metric ton price is a
good sign but the volumes have been scanty to date and the company
is now at commercial-scale and poised to grow, fast. So, lots of
potential customers — a matter of scaling up production at
effective yields.

In the case of TerraVia, a more complex task. There’s a focusing
going on in the customer base at the same time as the company is
ramping production.

One of the more interesting points of comparison, though — is the
contrast between the search for focus and the search for
diversity. BioAmber finds itself keeping a focus on its single
molecule and process, and diversifying the customer and investor
base. Making its molecule multi-functional, that’s a key — new
things you can do with succinic acid, in short. TerraVia, is also
diversifying investors and customers, but continues to aim at
diversifying its range of molecules. In short, new applications
through new oils. Yet, a single technology, in this case algae
fermentation.

Pacific Ethanol, that’s the outlier here.

It’s diversifying in all directions, as are all conventional, or
“first generation” companies. They’re acquired Aventine to achieve
economies of scale; they’re diversifying the customer base through
exports. They’re diversifying the product line — adding corn oil
extraction which has opened up new customers for them. In
partnership with Edeniq, they’ve added cellulosic production which
they get out of the cellulosic material in the corn kernel. And,
they remain heavily invested in the nutrition space, through the
animal protein business of the dried distillers grains (DDGs).

Some of their peers have also explored adding CO2 liquefaction to
turn that CO2 gas into an asset. Call it a gasset. And, others in
the first gen space have experimented with renewable natural gas
and sorghum as a feedstock to qualify for advanced biofuels RINs.

Diversification vs focus

Bottom line — all pursuing growth but PEIX is approaching through
diversification of feedstocks and technology, as opposed to
focusing the technology and diversifying the customer base through
new applications.

Experts differ on the merits of focus vs diversification almost
as much as they differ on whether companies should be organized
around customer sets, product lines, or regions. It’s the age-old
debate, and it’s now invading the renewables space.

Diversification means risk-spreading, and that’s a good thing.
Focus means putting resources onto the most important
opportunities, and that’s a good thing.

Here in Digestville, we see diversification as a stronger
strategy — though resources are hard to come by and the investors
who provide them are known to have epic issues with
attention-deficit disorder when the results come in more slowly
than expected, and costs rise.

The reason is this. Aside from a handful of experts, some
profiled recently in The Big
Short, who correctly called the timing on the Great
Recession of 2008-10. Who foresaw the problems with weapons of
mass destruction repiuted to be in Iraq? Who called the timing
well on the rise of fracking, or the 2014-16 crash in commodity
prices?

We live in a world of global macro — macroeconomic events that
shift the microeconomic landscape that renewables compete in, like
seismic waves rolling through the San Andreas Fault. The world of
$80 oil was expected to begat cellulosic ethanol — instead, we saw
driving miles drop, fracking take off, and interest in electrics
soaring. Meanwhile, fuels producers began to chase chemicals,
which welcomed new sources in a world of high commodity prices.
But now, chemicals find challenges and though fuels protected by
the Renewable Fuel Standard are doing fine so long as there is not
over-production — many technology developers are targeting
protein, and nutrition as a whole.

The Summer of Fish Meal

It’ll be the summer
of Fish Meal, perhaps. But where will the next set of trends
take us? Hard to say, because we live in a macro world — to some
extent influenced by global interest rate policy, or social
factors that influence cartels such as OPEC.

How do renewables companies find strength through diversification
when the resources that diversity demands can drain a treasury.
The secret lies in partnership based on the search for an
alternative to economic, social or climate pain.

No pain, no gain

Renewables, they’re a therapeutic for what ails us, and the
natural first customer for an experimental therapeutic is the
patient at the greatest risk, feeling the greatest pain. It’s pain
that drives companies to complete tasks — groups driven by
perceived opportunity have been known to be fickle — dirfiting to
the next glowing target like moths to a flame.

Pain focuses, clarifies, and makes change inevitable and drives
us to the finish line. If there’s pain the sector, there’s no gain
without it.

March 14, 2016

Solazyme's Not-So-Puzzling Rebranding

The what, the why, and the “why now?”

In California, Solazyme (SZYM)
said that it is now focusing exclusively on food, nutrition and
specialty ingredients, renaming the company TerraVia. Having
elevated CEO and co-founder Jonathan Wolfson to the Executive
Chairman post, the company says it is on the hunt for a
food-business CEO, and has raised $28M from a group of foodie
investors including Glenhill Capital, VMG Partners, PowerPlant
Ventures, ARTIS Ventures, Simon Equities and several influential
food industry CEOs.

Leaving many observers feeling like Caitlyn Jenner’s golf buddies
at Sherwood Country Club. Supportive but perhaps a little
confused.

The products, technology and market opportunities in industrial
markets including fuels, industrial oils, and the oilfield/Encapso
business will be spun-off. The company stated: “Moving forward,
these initiatives will be grouped together as “Solazyme
Industrials” and will not be part of TerraVia’s refined focus.
Solazyme believes these businesses have tremendous opportunity to
develop into large and profitable entities, while improving the
lives of people and the planet. The Company will be pursuing
strategic alternatives over the next 12-18 months to unlock the
value created. Solazyme’s objective is to identify partners who
have the operational capabilities needed to realize the potential
of those businesses.”

There are two ways to tell the tale. We’ll visit the dark side
first, and then focus on the path forward for the newly-minted
TerraVia.

The Dark Side of the Story

Let’s face facts. We have a CEO search rather than a new CEO,
plus a re-branding of the company without the kind of signature
deal that usually propels companies to venture into the risky area
of re-branding. And, we have a jettisoning of two of the four legs
of the corporate stool.

The circumstances are screaming that the Monday afternoon’s Q4
earnings announcement will make it plain that Solazyme’s growth
and growth prospects in certain sectors have stalled short of cash
positive — just as the nutritional prospects have materially
brightened. Clearly fuels are in that basket. We’ll have to see
what the fate of Algenist is, and how the company will handle the
pressing topic of securing orders for its commercial-scale plant
in Brazil.

On the industrials side, it would come as no surprise that
there’s the exhaustion powered by $30-$40 oil and crashing rig
counts that doomed Encapso and made Solazyme’s fuels unaffordable
except in boutique quantities. On the nutrition side, a name-brand
group of White Knights have come along, and have targeted the
company to get a hold of its powerful technology and applications
in the foodie space. For sure, the investors are buying in at
considerable premium to the stock’s moving average. Very
encouraging.

Back to the sunny uplands of algae’s promise and Solazyme’s
powerful technology

If you’ve been on Neptune for the past decade or so, let me state
for your benefit that the world could use help on nutrition, with
a population set to increase some 4 billion this century. That’s
3.8 quadrillion calories per year, more than we consume right now.
Assuming that the developing world, by the way, doesn’t increase
its caloric intake.

Think of that as 2 billion tons of the edible parts of a salmon,
per year, additional. And that’s excluding any pets you might
bring along. And excluding the food you plan to feed to the
salmon. And the waste part of the fish, and the food that gets
wasted through spoilage and so on.

Did I mention that the global fish catch last year was 90 million
tons, the whole she-bang? And, that we’re currently alarmed over
fish depletion rates. And, that we’d like our calories to be
healthier, please. Which means making the healthy calories better
tasting, and you’ll appreciate the challenge thereof if you’ve
ever tried to sell the idea of broccoli to a five-year old with an
ice cream in her hand.

For some time, Silicon Valley has been spewing our tech endeavors
aimed at the nutrition problem — from ingredients (such as flavors
and flavorings) all the way to food substitutes — and yield
enhancing crop technologies and crop protection systems. Companies
like Modern Meadow, Beyond Meat and Impossible Foods. Given the
large valuations and epic venture rounds they’ve been racking up —
it’s not surprising that some industrial biotech companies are
either being acquired or changing their stripes as fats as they
can, to join the rush.

Evolva, for example, acquired Allylix, but not for its
transformative jet fuel capabilities but for its yeast
fermentation patent portfolio, more or less. Sapphire Energy
re-aimed itself at the omega-3 and protein markets not long ago.
Amyris maintains a fuel and industrials unit of considerable
promise, but has been making its most headway in the health &
beauty and flavorings world, of late.

So, there are epic reasons for Solazyme, under the TerraVia
brand, to go forward in the world of developing applications in
food oils, and whole algal flour, and the like. And to those
who’ve been around the food ingredient business — the winds of
change are blowing and Solazyme’s technology is powerful enough to
make it a major player.

But the competitive advantage will not be limited to its
algae-based technology. There’s a considerable customer list now
built up in nutrition — some of which are newly disclosed this
week, including Hormel, Utz, Enjoy Life, So Delicious, Soylent and
Follow Your Heart. And over in speciality personal care
ingredients, there are “major customers” not yet disclosed,
alongside the multi-year relationship with Unilever.

And, TerraVia has gone through many of the hardships of scale-up
in its commercial-scale facility in Brazil. The company has
substantially de-risked itself. And achieved a “sector focus” with
these announcements that many in the financial community have been
calling for. The major task going forward is to demonstrate that
these customer relationships will translate into large, multi-year
commercial orders at profitable margins — that we have yet to see
and analysts will be scouring the quarterly report issued Monday
for the signals that orders are scaling commensurate with the
opportunity.

Reaction from Fortress TerraVia

Bullish they are.

“By unlocking the power of algae, the mother of all plants and
earth’s original superfood, we are bringing much-needed innovation
in food and nutrition,” said outgoing CEO Jonathan Wolfson. “Our
new generation of breakthrough ingredients and foods delivers on
nutrition, flavor and texture all with an unparalleled
sustainability profile, and these products are already beginning
to penetrate a market that is demanding healthier alternatives.
Over more than 13 years we have invested in developing a unique
understanding and expertise around algae. Today the pieces are in
place for the Company to fulfill its mission and create
substantial value for customers and shareholders.”

“There are opportunities for our algae-based ingredients across
every aisle of the grocery store, driven by consumer demand for
clean labels and an increasing focus on plant-based foods with
great taste,” said SVP and chief foodie Mark Brooks. “We are
enhancing a new generation of foods that deliver better flavor and
nutrition, including healthier fats and enhanced protein, fiber
and micronutrients. In addition to products incorporating our
ingredients on store shelves today, we are currently in active
development projects with major CPG companies for new products
such as salad dressings and gluten-free bakery products that are
healthier and offer the taste and texture that consumers demand.”

“We are moving forward with a strong business foundation and
clear vision,” said CFO Tyler Painter, Chief Financial and
Operating Officer. “We have invested significant time and capital
in the development of our innovation platform and large-scale
manufacturing capability. We enjoy long-standing commitments from
partners, led by Bunge and Unilever, who have helped bring our
vision to life. Importantly, we have also learned significant
lessons in scale-up and commercialization, helping to de-risk the
inherent challenges in bringing disruptive products to market.
These strengths combined with our refined focus, a proven suite of
products and the expanded market knowledge we gain with our new
investors and board member, position us well to execute on our
opportunities in food, nutrition and specialty ingredients.”

The Bottom Line

The need to focus resources, we get it. The need to raise
capital, we get it. The need to focus on what has momentum, we get
that too.

Technology takes us in strange directions, as any foodie might
know. Percy Spencer invented the microwave in 1945 by complete
accident, after noticing that the chocolate in his pants melted
when he passed by a magnetron. Took 20 years to perfect it, but
look at the microwave now.

March 13, 2016

Can Amyris Triple Sales In 2016?

Jim Lane

Despite a dismal beginning to earnings season, as Amyris,
Arcadia disappoint, the Eco-Emirates of Emeryville look set for
huge expansion in 2016.

In California, Amyris (AMRS)
reported Q4 revenues of $9.6mn and a net loss for Q4 of $41.9
million ($34 million after elimination of non-recurring items),
well below Wall Street consensus estimates of $32.4 million. “The
fourth quarter resulted in our best renewable product sales
quarter to date during 2015 while also highlighting our challenge
in completing our product finishing and shipping in time for one
of our customers,” said Amyris CEO John Melo, who noted in a call
with investors that a $15 million revenue chunk was pushed into
2016 via a production delay.

Meanwhile, Arcadia Biosciences (RKDA)
also took a beating, reporting $1.3 million in Q4 revenues, down
by more than haf from 2014, and a net loss of $4.1 million for the
quarter, compared with $1.6 million in Q4 2014. Arcadia also
blamed timing, with interim CEO Roger Salameh noting that “While a
major financial milestone was not recognized in 2015, we have made
multiple advancements for our later-stage products that have the
potential to lead to future milestone payments and, ultimately, to
commercialization of our pipeline.”

Over at Amyris

The Business Progress

The big news?

Two items to note. 2016 revenue guidance of $90 million -$105
million. And, a planned sale of “ non-core assets expected to
generate approximately $40 million-$60 million in net proceeds.”
We’ll have to see what those non-core assets exactly are. All that
Amyris would say is that those assets are generating 10% of the
revenues and 20% of the costs.

Highlights for Amyris at year-end? From a volume point of view,
the highlight may well be a record quarter in squalane shipments
and recently-launched hemisqualane. Or, new major agreements with
two mystery partners for farnesene applications related to
nutraceuticals and polymers and converted two other partners from
collaborations to farnesene supply agreements supporting Brotas
plant utilization expectations through 2020

But we note the successful launch of the Biossance Beauty Brand on HSN
last month with what Amyris described as “better-than-expected
sales metrics, leading to increased number of shows planned for
2016 that will feature expanding line of products.”

Also, let’s not overlook
Muck Daddy, perhaps the most strikingly-named product ever to
appear out of the bioindustrial revolution. Here, Amyris points to
“successful AAPEX and SEMA automotive aftermarket trade show
presence and SCORE International (Baja racing series) and Pirelli
World Challenge (PWC racing series) sponsorships.”

The Tale of the Tape

GAAP revenues were $9.8 million, compared with $11.6 million for
the fourth quarter of 2014, and $8.6 million for the third quarter
of 2015. The increase from Q3 2015 was despite a delay in a large
product shipment to a collaboration partner anticipated for Q4
2015. Product sales in Q4 2015 of $5.2 million, compared to $4.7
million in Q4 2014 and $4.2 million in Q3 2015. Collaboration and
grants revenues contributed $4.6 million to total GAAP revenues
for the quarter, down from $6.9 million in Q4 2014, and increased
from $4.4 million in Q3 2015.

Cost of products sold increased to $11.3 million for Q4 2015 from
$9.3 million for the same period a year ago driven by higher
sales, product mix and a higher yielding pilot run of our latest
farnesene strain.

Net loss attributable to Amyris common stockholders for the
fourth quarter of 2015 was $41.9 million, or $0.23 per basic share
and $0.28 per diluted basis. Adjusted net loss, excluding
non-recurring items, and excluding stock-based compensation, was
$34.0 million, or $0.16 per basic share.

Reaction from Fortress Amyris

“We expect to complete a significant portion of the delayed
product shipment during the current quarter with the remainder
later in the year,” said Amyris CEO John Melo, “and continue to
make very good progress in the expansion of our collaboration
portfolio. We entered 2016 with key commitments in place for
farnesene applications, which represent a substantial percentage
of our total planned annual farnesene production volume for 2016.
The volumes we expect under these farnesene supply agreements
represent initial supplies for high-volume applications, and
alone, could fully utilize our Brotas plant through the end of
2016.”

Melo added, “We are focusing on our core business, which is
driven by solving supply challenges, delivering innovative
products and providing our partners with a strategic advantage
underpinned by high-performance, sustainable products. We expect
our key results for 2016 to include divestment of non-core assets
that we believe will generate approximately $40 million to $60
million of net proceeds, closing new collaborations in personal
care and pharmaceutical industries and delivering on our farnesene
supply agreements.”

Reaction from the Street

Jeffrey Osborne of Cowen & Co wrote:

Revenue in the qtr was soft &
further magnified due to timing of shipments. Record low
farnesene production costs and the continued launch of consumer
products gives us confidence in our stock assumptions going
forward. The Q4 equity raise helped to delever the BS, but we
would continue to look for a steadier stream of commercialized
product introductions to get more constructive on the stock.

Amyris reported GAAP Revenues of
$9.6mn, significantly below both Cowen and the Street’s ests. of
$36.3mn and $32.4mn.

Amyris continues to find success
commercializing its various products/technologies. It advanced
fiver major applications in 2015, and continued to apply its
products in a wide variety of end markets, including tire
manufacturers, fragrance companies, and various industrial and
healthcare applications. Given Amyris’s expanding product lines
and the commercialization of new products in 2016 we are using
an EV/Sales multiple of ~4.5X. The resulting price target is
$2.00 (prior $2.50). As new molecules are introduced and the
direct to consumer new products hit shelves, we could see upside
to our estimates. However, we are taking a wait and see approach
on execution before getting more constructive on the stock.

Over at Arcadia

Arcadia Biosciences announced Q4 revenues of $1.3 million and for
2015, $5.4 million, down from Q4 2014’s $2.8 million and full-year
2014 revenues of $7.0 million.

Hmmm.

According to Arcadia, “the decrease primarily reflected lower
license revenues, as the fourth quarter of 2014 included a major
milestone not replicated in the fourth quarter of 2015,” said
interim CEO Roger Salameh.

But the company continues on its path. Salemeh added, “We’re
maintaining a consistent level of funding for R&D and SG&A
to support our growth, while continuing to tightly manage
expenses. We’re particularly pleased with the regulatory,
commercial and intellectual property advancements we’ve made this
year and we continue to manage our pipeline to focus on those
products and crops that create the greatest value for our grower
customers, our commercial partners and our stockholders,” said
Salameh.

The Business Progress

Investors might well rue that “a major financial milestone was
not recognized in 2015,” but there are some big wins that are
worth noting.

In December, Dow AgroSciences and Arcadia announced a strategic
collaboration to develop and commercialize yield and stress traits
and trait stacks in corn. The collaboration leverages Arcadia’s
leading platform of abiotic stress traits with Dow AgroSciences’
enabling technology platforms, input traits, regulatory
capabilities and commercial channels.

In the same month, Arcadia and BGI, the world’s largest genomics
organization, announced a collaboration to create an extensive
rice genetic resource library to advance food crop research and
development.

And, In October, two years of field trials in Africa with leading
lines of Nitrogen Use Efficient (NUE) rice demonstrated an average
yield increase of 19 percent over the conventional control lines.

The Tale of the Tape

Revenues for the quarter were $1.3 million and for the year were
$5.4 million, compared with $2.8 million for the fourth quarter
and $7.0 million for the full year 2014. The decrease primarily
reflected lower license revenues, as the fourth quarter of 2014
included a major milestone not replicated in the fourth quarter of
2015. Operating expenses for the full years of 2015 and 2014
included $596,000 and $1.7 million in non-cash inventory reserves,
respectively, for the company’s GLA safflower oil product.

The company’s loss from operations for both the fourth quarter
and the full year of 2015 was greater when compared with the loss
from operations for the similar time periods in 2014. Lower
revenues and increased operating expenses led to a loss from
operations of $4.1 million in the fourth quarter, compared with
$1.6 million for the same period in 2014. For the full year, loss
from operations was $15.6 million in 2015 compared with a loss
from operations of $15.2 million in 2014 as reduced operating
expenses partially offset lower revenues for the year.

Highlights to watch, as seen from Fortress Arcadia

In the investor call, Graham Wells of Credit Suisse asked “if
there any traits in particular that we, as investors, and the
market should take a particular interest in following, anything
that you’re really excited about over the next 12 to 24 months?”

Salemeh responded, “I’m excited about all of them, that’s why we
take the portfolio approach. But I think over the next 12 to 24
months, traits, staying with the traits for the moment, you should
be thinking about HB4 Stress Tolerance in soybeans, Nitrogen Use
Efficiency in rice and wheat, and salt tolerance in rice. Those
are from the productivity side. Those are, I think, the most
exciting traits. From the product quality side, one trait that we
probably haven’t talked about much but is an important one, and I
think could be pretty significant value driver for the company is
resistance starch wheat. And one of the things that I’m
particularly excited about with that trait trade is it’s a non-GM
product that’s really about human nutrition. We’re in advanced
stages of breeding and field development. And the pathway to
commercialization, frankly, is about being in competitive breeding
programs and just scaling up volume to meet our customers’
demand.”

The Bottom Line

Traits a-go-go (in the case of Arcadia) and tripling of revenues
(in the case of Amyris). Those strike us as the major takeaways
from this quarterly round. Although, amongst other things
beginning with a T, investors are probably emphasizing that the
Time for Take-Off is Today, not Tomorrow.

February 12, 2016

Mitsui Raises Stake In BioAmber JV

Jim Lane

In Canada, Mitsui has invested an additional CDN$25 million in
the BioAmber (BIOA)
joint venture for 10% of the equity, increasing its stake from 30%
to 40%. Mitsui will also play a stronger role in the
commercialization of bio-succinic acid produced in Sarnia,
providing dedicated resources alongside BioAmber’s commercial
team. BioAmber will maintain a 60% controlling stake in the joint
venture.

“Mitsui is continuously committed to renewable chemistry and
through our increased equity stake we will be more actively
involved in joint venture management and sales, leveraging our
global sales platforms,” said Hidebumi Kasuga, General Manager,
Specialty Chemicals Division, Basic Chemicals Business Unit. “We
are very happy with Sarnia’s fermentation and plant operations
performance to date and the JV has received quality certifications
from more than 90 customers. With this progress, I am confident
that Sarnia’s bio-succinic acid will be penetrating the global
marketplace quickly.”

“Mitsui’s increased commitment to the Sarnia plant is a strong
endorsement of its value and potential. We have in Mitsui a
financially robust, global partner that is motivated by Sarnia’s
progress and prospects,” said Jean-Francois Huc, CEO of BioAmber.
“This investment strengthens Sarnia’s balance sheet as we ramp up
production and sales.”

The publicly disclosed relationship between Mitsui and BioAmber
dates back at least to 2011, when BioAmber and Mitsui partnered to
build and operate the
previously announced manufacturing facility in Sarnia, Ontario,
Canada. The initial phase of the facility is expected to
have production capacity of 17,000 metric tons of biosuccinic acid
and commence commercial production in 2013. The partners intend to
subsequently expand capacity and produce 35,000 metric tons of
succinic acid and 23,000 metric tons of 1,4 butanediol (BDO) on
the site.

Bioamber and Mitsui also said they would ultimately jointly build
and operate two additional facilities that, together with Sarnia,
will have a total cumulative capacity of 165,000 tons of succinic
acid and 123,000 tons of BDO.

BioAmber’s Sarnia joint venture with Mitsui & Co. Ltd. began
shipping bio-succinic acid to customers in October 2015 and is
operating its manufacturing process at commercial-scale.
Management expects the Sarnia plant to increase production volumes
progressively to reach full capacity in 2017.

When BioAmber raised $45
million dollars in a 2011 Series B financing to accelerate
the commercialization of succinic acid and modified PBS
(polybutylene succinate, a renewable, biodegradable polymer), the
round was led by NAXOS Capital Partners and included Mitsui &
Co, Sofinnova Partners, and the Cliffton Group. BioAmber will also
strengthen its management team and build out its in-house R&D
capabilities to accelerate the development of its adipic acid
platform. BioAmber operates the only dedicated biobased succinic
acid plant and has partnerships with market leaders including
Cargill, DuPont Applied Biosciences, Mitsui & Co. and
Mitsubishi Chemical.

November 15, 2015

Dyadic Sells Industrial Technology Business To Dupont

Jim Lane

As Dyadic cashes out of industrial biotech and retains a C1
license for pharma, DSM and Syngenta also announce a partnership.
Companies are girding their loins for the long haul. The Digest
takes a look,

In Florida, DuPont (DD)
Industrial Biosciences will acquire substantially all of the
enzyme and technology assets Dyadic’s (DYAI)
Industrial Technology business for $75 million, including Dyadic’s
C1 platform, a technology for producing enzyme products used in a
broad range of industries.

DuPont has granted back to Dyadic co-exclusive rights to the C1
technology for use in human and animal pharmaceutical
applications, with exclusive ability to enter into sub-license
agreements in that field. DuPont will retain certain rights to
utilize the C1 technology for development and production of
pharmaceutical products, for which it will make royalty payments
to Dyadic upon commercialization.

The Agreement provides for $8 million of the purchase price to be
held in an escrow account for 18 months to ensure Dyadic’s
obligations with respect to certain indemnity claims and working
capital adjustments. Dyadic expects to utilize approximately $66
million of its net operating loss carryovers to substantially
offset the gain realized from this transaction. Closing is
expected by the end of 2015.

Dyadic, post-closing

Bootom line, Dyadic has $5-$6M cash in the bank, this adds $75M,
debt is around $10M of which around $8.6 is convertible. Worst
case scenario — that is, none of the debt converts to equity —
we’re looking at a company with a lot of cash, a C1 license for
the pharma sector, and a lawsuit. In some ways, it feels like a
shell, until Dyadic ramps up in pharma.

To that end, we see in the official release on the transaction:
Dyadic also intends to continue its existing programs with Sanofi
Pasteur and its involvement within the EU-funded ZAPI program.
Dyadic plans to focus its research programs on the development and
manufacturing of human and animal vaccines, monoclonal antibodies,
biosimilars and/or biobetters, and other therapeutic proteins.

What’s that code for? “Hopefully., we’ll come up with something
amazing with Sanofi and they’ll buy us,” or possibly “we’ll come
up with amazing things elsewhere in pharma and someone else will
buy us”. In the interim, Dyadic retains the right to sub-licemse,
so stand by for more developments with the C1 platform.

DuPont, post-closing

Overall, a big win for DuPont even if not bad at all for Dyadic.
Dyadic, before it fell into the corporate tussle that prompted the
Greenberg Trairig lawsuit and some heft 7-figure settlements
already, was trading at $5.30 per share — based on today’s
shareholdings, that would be a market cap of $164 million.So,
DuPont picked up a nice bargain. It has the Abengoa license and
BASF to generate revemue right away, and DuPont is bound to take
the C1 platform to new heights.

How negative can investors get?

Overall, Dyadic took a big jump in trading, but way short of what
they should have received. Here’s a company that is going to have
$70M in free cash on its balance sheet, has a good lawsuit and a
license to a valuable technology, and has a market cap of $46M.
That’s a down in the dumps investor. By the same investment logic,
Facebook would be trading at $3.63 instead of $109.

Status of Professional Liability Litigation

The Agreement provides that Dyadic will retain all of the
potential rights and obligations associated with its ongoing
professional services liability litigation against the law firms
Greenberg, Traurigand Bilzin, Sumberg Baena Price and Axelrod. The
parties have voluntarily agreed to participate in non-binding
mediation on November 18, 2015.

On July 31, 2015, the Company reached a settlement with another
defendant law firm and on August 12, 2015, the Company received
full payment of this low seven-figure settlement, which is net of
fees and expenses which will be reported in the Company’s
consolidated statement of operations for the quarter ending
September 30, 2015.

DSM, Syngenta to develop biological solutions for agriculture

In the Netherlands, DSM and Syngenta announced an R&D
partnership to develop microbial-based agricultural solutions,
including bio-controls, bio-pesticides and bio-stimulants. The
companies aim to jointly commercialize solutions from their
discovery platform.

The collaboration aims to accelerate the delivery of a broad
spectrum of products based on naturally occurring micro-organisms
for pre- and post-harvest application around the world. These
organisms can protect crops from pests and diseases, combat
resistance and enhance plant productivity and fertility.

DSM will contribute its unique microbial database, discovery
platform and decades of experience in scaling and manufacturing of
microbial products. Syngenta will complement this with its
specialized know-how in agronomic applications and plant
biotechnology, as well as its global market access and commercial
strength. Syngenta will also provide a dedicated R&D program
for the selection of relevant micro-organisms.

One-offs, or consolidation trend?

As we examined in our story on Merger Mania, we see this as a
strategic period of consolidation. We see Renewable Energy Group (REGI),
on the diesel side, and Green Plains (GPRE)
on
the ethanol side, also actively acquiring first-gen biofuels
technologies; meanwhie, there are rumored talks between DuPont,
Syngenta and Dow which may produce a super-combination in the
agricultural sector.

In the case of DSM and Syngenta, it’s a collaborative effort
rather than consolidative, but it provides fresh evidence that
companies are seeking to stretch or limit their investments
through partnership.

What next?

Under-capitalized technologies abound that are moving more slowly
than desired in the industrial biotechnology arena. Consider the
slow progress in driving down costs in advanced jet fuels as one
example; the slow progress in deploying blender pumps and other
infrastructure that has led to a pause at the EPA in growing the
renewable volume obligation on blenders.

The classic opportunities in consolidation are: 1) market share,
acquiring additional production capacity or new customers for an
established product; 2) efficiency, acquiring core or new
technologies that have enhanced performance; 3) expansion,
acquiring new technologies for growth, new market entry or
enhanced geography; or 4) vertical integration, resulting in a
stronger value proposition that commands a bigger chunk of the
end-customer dollar. Green Plains is active in #1, DuPont’s C1
acquisition fits in #2, Evolva’s Allylix acquisition as well as
BASF’s acquisition of Verenium assets; Cargill’s acquisition of
OPX technology fits in #3; REG’s Imperium acquisition works for
both #1 and, in its terminal assets, #4 as well.

The opportunities in vertical integration

Overall, we see vertical integration or collaboration to connect
supply and demand through renewable fuel distribution assets as a
major opportunity. Clearly, for example, every cellulosic ethanol
play has a value-crushing dependency on blender pump and retail
expansion.

But the economics are tough on simply acquiring outlets. In
California, the introduction of blender pumps adds an average of
30,000 gallons of E85 that retail on average for $60,000, for an
intial investment of that generally ranges between
$50,000-$100,000 per station. That math is pretty solid, but
acquiring 33,000 outlets in order to expand the market by 1
billion gallons, that’s huge capital.

But, consider as an alternative that the industry doesn’t need
ownership of retail assets, it needs franchising and fuels
distribution agreements. A big brand. Something that Propel has
been developing, as well as Protec, and Minnoco. We’ll see how
those brands grow and whether they access the capital they need to
connect supply and demand for renewable fuels.

Who’s Next?

Clearly, there are technologies that are developing single
molecules that have overwhelming demands on them to also develop
financial, sales, marketing, and operations capabilities. Expect
there may be combinations through partnership, merger — or for
more acquisitinos by industry giants interested in distributing
high-performance molecules to their customers. Virent is an
example of a tasty target — intense interest in its capacity to
produce drop-in fuels and industrial molecules, from the likes of
Coca-Cola and Shell. Much the same could be said for Avantium and
its YXY platform. Someone might ultimately recognize that Solazyme
and Amyris are developing products in remarkably similar segments,
and that they have more to gain together than apart. Verdezyne is
a tempting target as it reaches for scale. Just to name a few.

BioAmber's Sarnia Plant Operating At Commercial Scale

In Canada, BioAmber’s (BIOA)
Sarnia joint venture with Mitsui & Co. Ltd. has begun shipping
bio-succinic acid to customers and is operating its manufacturing
process at commercial scale, meeting a significant company
milestone, the company said.

Yeast biotechnology exceeds performance targets

BioAmber has confirmed the performance of its proprietary yeast
in the production fermenters in Sarnia. The fermentation
performance achieved is significantly above the initial targets
set for 2015, and the yield and productivity levels already exceed
the targets the plant was designed to hit longer term. The
bio-succinic acid being produced is of higher quality than the
product previously produced in the demonstration plant located in
France.

Customer shipments initiated

Initial shipments have started to customers so they can confirm
the quality of the bio-succinic acid produced in the Sarnia plant.
Management expects the Sarnia plant to be in commercial operation
later this month and to increase production volumes progressively
to reach full capacity in 2017.

3 lessons learned so far in the BioAmber story

1. Limited feedstock risk is a good idea. BioAmber is using
relatively plentiful Ontario corn sugars that are generally
available in the sub-$4 range, and for which a supply chain is
already in place.

2. Think advantaged fermenation, not advanced. Succinic acid is
one of the most efficient targets, starting from dextrose. C4H6O4
succinic, from C6H12O6 dextrose — that’s up to 98% theoretical
efficiency, much higher than making hydrocarbons or alcohols from
sugar. Plus, it’s a one-pot system — compared to stepping up to
succinc from a petroleum-based hydrocarbon.

3. Creative offtake partnerships make a real difference. The
take-or-pay partnership with Vinmar for boatloads of succinic acid
relieves a young company from the burden of identifying and
capturing all the global customers, and aids immensely with
financing by offloading some market risk. Under the terms of the
15-year agreement, Vinmar has committed to purchase and BioAmber
Sarnia has committed to sell 10,000 tons of succinic acid per year
from the 30,000 ton per year capacity plant that is currently
under construction in Sarnia, Canada.

One lesson left to learn

Will the technology reach nameplate capacity, and when? That’s a
questino not only of the yield — but the at-scale rates and titers
and whether the economic lift from sugar to succinic supports the
capex. BioAMber says, emphatically, yes — and we’re standing by
for confirmation when the company reaches expected capacity in
2018.

More about BioAmber, including growth potential and future
milestones

Reaction from BioAmber

Not surprisingly, some proud peacocks around Planet BioAmber.

“The operational ramp-up is ongoing and our fermentation results
have exceeded all expectations, offering us the prospect of better
operating margins than we had originally projected,” said Fabrice
Orecchioni, BioAmber’s Chief Operations Officer. “We have a
remarkable group of dedicated employees in the plant, supported by
excellent engineers, and our decision to hire and train them well
in advance of the startup is paying dividends. We are only a few
weeks from commercial production and our yeast has already proven
to be operationally robust and efficient, and our purification
process is producing the high quality bio-succinic acid that we
expected,” he added.

August 28, 2015

The Velocity of Amyris

Jim Lane

What makes Amyris (AMRS),
Amyris? We look at the products, the evolution of the story, the
partners, the focus on yield, and deeper into the story of Rate.

“I mean, man, whither goest thou? Whither goest thou,
America, in thy shiny car in the night?” “Whither goest thou?”
echoed Dean with his mouth open. We sat and didn’t know what to
say; there was nothing to talk about any more. The only thing to
do was go.”— Jack Kerouac, On the Road

Amyris experienced last month what CEO John Melo referred to as
“our fastest product start”, and you might wonder, was it a fuel,
a chemical, a fragrance, a flavor, a biotech service platform?

None to all of the above. It’s a product called Muck Daddy, a
high performance, fast-acting hand cleanser. And if the brand
sounds just a little bit like Puff Daddy, that’s perfectly OK.

The Many Faces of P.Diddy and P.Amyris

There’s
no better example than the artist known variously as Sean Combs,
Puff Daddy, P. Diddy, Diddy, Sean John, and more recently Swag, to
help us understand what a sustainable biotech company like Amyris
is all about.

When I first heard of Sean Combs, it was in his years as founder
of Bad Boy Records, an influential East Coast rap label that was
home for Biggie Smalls (The Notorious B.I.G). I was working out of
the West Coast in the mid 90s, booking some hip hop acts for AOL
Live! sessions — the likes of Coolio, Cypress Hill and
KRS-One.

Then, he was Puffy, and I’ve kept tabs on him since; he came
forward as a performer in 1997. Daddy, Diddy, Swag — it takes a
lot of identity and costume changes to survive and thrive in the
world of hip-hop. Underneath, there was always the artist and the
business mind.

Back to biotechnology. Over the years, we’ve had a lot of
identities for Amyris, too. The changes and re-directions annoyed
some of the people all of the time, and all of the people some of
the time.

It’s fair to say that people had just got the idea of what Amyris
Biotechnologies was all about, when suddenly it became Amyris,
Inc. There was subsidiary called Amyris Fuels, then there was an
announcement that Amyris was exiting fuels.

There was Amyris, the Biofene company. Amyris and the ‘Fene
economy. Just when everyone figured out what ‘Fene was, there was
an announcement that Amyris would no longer focus exclusively on
farnesene. (‘Fene appears to be the DJ identity of biofene or
farnesene, though Puff Fene or P. Fene might have had more
street cred).

Somewhere in there we had Novvi, the Amyris-Cosan JV for
lubricants and high-performance oils. Then there was Amyris,
makers of Biossance cosmetics. There was the Amyris µPharm
discovery and production platform, announced this year, which
sounded an awful like the Amyris Biotechnologies of old.

And we had the Paraiso plant, until it was the Brotas plant, and
we had the Usina San Martinho JV to build more capacity, until we
didn’t. It takes a lot of identity and costume changes to survive
and thrive in the world of the advanced bioeconomy. Underneath,
there were always the artists and the business minds.

So, you get the idea. There have been more Amyris identities than
probably Mickey Rooney had marriages. But it never occurred to me,
then or now, that the changes were a weakness. Change, that’s
Amyris; the company is as hard to pin down as Madonna or Bob
Dylan, and though occasionally Amyris is as popular on Wall Street
as when Dylan went electric at the Newport Folk Festival in 1965,
it’s the stuff of longevity: change that is, when the change is
from purpose.

When Faster Gets Faster

In the Digest Universe, we place the company as a pure
Design-Build-Test-Learn velocity player, one of the handful of
Moore’s Law companies that just gets faster and faster and more
automated.

If you walk through the Amyris labs in Emeryville, the first
thing that strikes you is the shrinking footprint of technology
and the people. Not that they have fewer people, or fewer
machines. But the machines are immensely smaller and the people do
more interesting things. Things you take for granted even in
Big-Ticket, High-Priesthood academic labs — like, lots of
undergrad and grad students moving a lot of stuff around in a
physical way, the old analog assay. It’s like, gone.

What we see are designs scaled up to 200 liters in the lab and
related pilot units, then transferred to Brotas, in 1000X
scale-ups.

The Big Stumble

Just a few years back, Aymris transferred a tremendous amount of
capital, hope, and R&D from demo-scale to full-scale at
Brotas, and the scale-up stumbled, spectacularly. There was the
hype, then the peril, right out of Apollo 13. “Emeryville,
we have a problem.”

In this case, as the yeast were multiplied up to fill the big
fermenters, they evolved slightly in each duplication step, 60 in
all. Now, keep in mind that these organisms really weren’t
designed by Nature to make this much farnesene. So, the mutations
generally were in the direction of reducing farnesene production,
and translating that carbon back into organism growth. The
low-growth mutations would rapidly take over the fermenter. Amyris
got day 1, day 2, day 3 normal, day 4 master alarms going off
everywhere as the production dropped off.

So, Design-Build-Test-Learn until they found a way to suppress
the growth of the mutations, by denying an amino acid (associated
with the farnesene pathway) vital to organism growth. Eventually,
problem solved. And the fast pace of 2011’s desperate innovation
has become table stakes at Amyris 2015, or Diddy Amyris, or Amyris
5.0, or what you will.

Design the code, load the DNA, execute it into yeast, 120,000
permutations a month, of which 118,000 are random evolutions based
around the 2000 designed projects. The focus? The search for
farnesene yield.

As R&D Director Joel Cherry put it, “you can chase an
enormous number of interesting scientific targets, most of which
are valid and all of them have proponents. But at the end of the
day, we needed to have focus, and for me it is a very simple
equation. We buy sugar and we make product, and that makes yield
the most important factor. So we focused on yield.”

To the extent today that the production organism has 80,000 new
DNA base pairs, and 40,000 of the old ones knocked out — out of
12,000,000 base pairs in the original DNA. That’s around a 1%
variation in around 10 years. And keep in mind, this is not the
rate of mutation — this is the rate at which changes have become a
fixed part of the production organisms. Successful evolutions, if
you will.

Clocking Amyris Against the Pace of Evolution

Contrast that with the molecular clock hypothesis, which suggests
that two bird species, to give an example, diverge at a rate of 1%
per 500,000 years. 1% in 10 years, vs 1% in 500,000 years. At the
rate Amyris is evolving its farnesene code, it would have evolved
by a factor greater than the genetic difference between humans and
chimpanzees, in less than 50 years.

Put another way, in about 1000 years, you could, extrapolating
the math in ways that will surely get the Digest a nastygram from
somewhere, replay the entire evolution of life on earth. At the
current rate. Which is speeding up. Which is why working at Amyris
has to be more interesting than working at the most cutting-edge
gaming company.

Let’s take it a step further for a second. Let’s apply some
Moore’s Law metrics to the speed of invention, at a genetic level.
Let’s say the pace at which we can identify and deploy a new gene
halves every two years. Is that possible? I don’t know. To be
honest, here in Digestville we can’t tell you what the oil price
will be tomorrow, exactly and for sure. Looking down the road 20
years in the world of genetic development, that’s about as easy as
understanding the conditions beyond the event horizon of a black
hole.

One thing we do know. The cost of a basic decoding of a genome
is, in fact, coming down even faster than the velocity of Moore’s
Law. So, it’s speculative but not without foundation.

In the basic math of our scenario, the entirety of the evolution
of life on earth could be played out in a lab, in some number of
years, in a matter of seconds.

Which is to say, evolution of target organisms, conducted
entirely by robots, controlled by algorithms written by
semi-sentient computers, running on processing schemes controlled
by other semi-sentient computers. That is to say, computers that
design-build-test-learn, with the emphasis on learning. Controlled
in turn by humans, who generally are focused on guiding computer
targets based on products of interest, and in charge also of
designing and improving the process by which computers learn.

Consider that a time will come when you gladly take a daily
capsule, which contains daily updates for your body — new defenses
against discovered ills, or potential threats — based on scans
delivered by advanced imaging and received and processed by these
innovative biological engines. You’ll receive the cure before you
show the symptom.

Velocity

Over at Amyris, you’ll see it happening now, if you look
carefully enough. Not just at the plastic bottles of Muck Daddy,
the Biossance creams, the flasks of renewable diesel, or the 140
million treatments for malaria by Sanofi using the underlying
technology upon which Amyris is based.

Instead, look at the robotics, they’re spreading. The pace, which
is quickening. The sense of mission, which has not diminished. For
sure, we don’t see the enthusiasm on Wall Street.

But keep in mind, these are the guys who spent 20 years not
figuring out Bernard Madoff — don’t be put off by the high
salaries and flashy suits, Wall Street minds are a mile wide and a
millimeter thick, and most of the brain mass there is devoted to
guessing when the Fed will move on interest rates.

Instead, look not to Wall Street, or even Main Street, but look
at Product Street. Firmenich, for example. No one’s partnering
with Amyris for skin cream formula, or flavorings. They could come
up with them in their own labs. They are partnering with Amyris
for speed, pure velocity. When you crush timelines, products that
were once in their “we can’t ever” fall over the corporate hurdle
into the Department of Let’s Get Going.

That’s why Amyris, which once pinned all its hopes on Farnesene,
has become instead the home of Farnesene and Friends. There are
three molecules in production at Brotas now. Expect a fourth this
year. Five, six, seven and eight — if you imagine those are well
down the development pipeline, you wouldn’t be arrested on
suspicion of smoking hashish.

Hear about Yield, think about Rate

But think upon this. Unless you are somewhere in the Bay Area and
in the synthbio community, or working at a development partner
where you can deep dive into hard data under the safe cover of
DNA, most of what you will hear is coming from a public company,
trying very hard to simplify and make more popular a story that
they need to tell on Wall Street. As the stock prices goes, so
does the company’s capital strength and its ability to fund its
future.

So, most of what you will hear is not about “velocity” and
“Design-Build-Test-Learn”. No one’s going to say anything to Wall
Street about “assay noise” or “robotics platforms” or the pace of
genetic manipulation. The story will be told mostly in terms of
this-many-units of Muck Daddy and that-many-units of Biossance
products, and that-many-tons of biofene sold to
this-many-customers. Sometimes, you’ll hear specific brands,
especially if they are blue-chippers. And you may hear about the
company building more and more direct links to the retail customer
where they see a niche and don;t currently have a partner who sees
a place in the value chain for themselves. As in Biossance, for
example.

All those are good things.

But you and I might take a moment and look beyond the weather of
today and the weather of the next quarter — as we do in looking
towards climate change and outcomes for the physical environment
in the next 60 years. And you’ll see more lines of R&D, more
products appearing, more yield improvements. It’s the More Law,
even more than Moore’s Law. As in “faster”.

If it’s yield in the fermenter that matters to companies like
Amyris — even more than rate and titre — it’s entirely the other
way around in looking at the company. There, it’s rate. As in pace
of innovation. Even more than yield — which is to say the result
in products. You see, in the future, companies that produce one
monster product each decade or so — that’s the old world of Yield.

But now it’s about partnership, and big companies look to small
companies because they are nimble, and that’s about rate.

August 08, 2015

Lower Revenues at Solazyme, But Also Lower Losses and New Customers

In California, Solazyme (SZYM)
reported Q2 revenues of $11.7M compared with $15.9M in Q22014.
GAAP net loss was $37.2 million for Q2 2015, compared to net loss
of $42.9M in the prior year period.

The company said that “year over year decline in revenues was due
to expected decreases in funded program revenue as well as in
product revenue due to the timing of certain Algenist sales
activities and slower than anticipated adoption rates for
Encapso.” The market responded to the results by slashing the
stock price 20 percent in Friday trading.

Analyst reaction was more positive, Raymond James analyst Pavel
Molchanov describing the results as “Uneventful” while reiterating
an Outperform rating, while Cowen & Co analyst Jeffrey Osborne
referred to “Wrinkles In Revenue Performance,” while pointing to
“Weak Drilling Market Disappoints”.

Osborne recapped the quarter” “Revenue for the quarter came in
below expectations, management attributed this shortfall to lower
than expected adoption rates of Encapso, the company’s drilling
lubricant. New product introductions and manufacturing
improvements at the Moema facility should translate to potential
future gains.”

“Despite modest progress toward an operational Moema, we are
still not convinced that the company’s commercial markets are
ready for commercial volumes anyway. The Clinton asset is
apparently already capable of producing in-spec product and was
essentially unused again in 2Q15. Progress toward sustainable
operations at Moema may sound encouraging, but is meaningless to
the company’s P&L without firm product demand. Ultimately,
substantial demand improvement will be needed to get to cash flow
break even, and we are unsure whether a novel product focused on
drilling fluids in the current environment is the right strategy.

Molchanov countered: “The versatility of Solazyme’s
algae-produced oils – which, importantly, are drop-in replacements
rather than “novel molecules” – leads to wide-ranging
opportunities across the chemical, personal care, and nutrition
markets. While operational shortfalls over the past year clouded
the production scale-up outlook at the Moema plant in Brazil, we
believe the tightened business model’s focus on the highest-value
products is strategically sound. The balance sheet also remains in
good shape, with the largest cash balance in the peer group. We
reiterate our Outperform rating. Our rating balances the large
upside to our DCF estimate with financial metrics that remain
choppy and difficult to forecast.”

Deeper looks behind the Story

Solazyme’s progress

The company said:

“We are making good progress against our core deliverables, the
commercialization of high value products across food, personal
care and industrial markets, and the delivery of key milestones at
the Moema JV production facility in Brazil,” said Jonathan
Wolfson, CEO of Solazyme. “While there is a lot of work ahead, I
am proud of the Solazyme team, and what they have accomplished so
far this year. I am excited about what is to come.”

“We are maintaining financial discipline in our operations and
focusing our sales efforts on strategic revenue streams,” said
Tyler Painter, COO and CFO of Solazyme. “On the commercial side,
our product portfolio is well aligned with trends across our
targeted end markets, and we are seeing a growing number of
projects and customers today.”

Company highlights

• Foods – AlgaVia and AlgaWise:

“We have a growing number of application projects in process with
a variety of food and beverage manufacturers and are starting to
see conversions from projects to customers. Most recently, a
division of a major multinational food company launched a series
of baking mixes using the AlgaVia protein and an exciting new
beverage company is launching a meal replacement drink made with
an AlgaWise oil.”

• Personal Care – AlgaPūr and Algenist:

“We transitioned Natura Cosméticos, one of Latin America’s
largest cosmetics and personal care product companies, from a
development partner into a customer of AlgaPūr microalgae oil. We
also partnered with BASF for the launch of the world’s first
commercial microalgae-derived surfactant for use in home and
personal care applications, utilizing AlgaPūr. We continue to grow
and expand our Algenist brand, which is now distributed in more
than 2,500 stores in 22 countries and has reached 37 SKUs.”

• Industrials – Encapso and Soladiesel

“We continue to expand our Encapso work with Flotek in South
America, including multiple successful wells in Colombia. In North
America, Encapso is experiencing longer than anticipated sales
cycles due to lower petroleum prices and substantially reduced rig
counts. In our renewable fuels business, we were named one of
three suppliers of blended fuel to UPS in support of its renewable
fuels program, and we also successfully completed a two-year
renewable diesel evaluation with Volkswagen of America.”

Elsewhere in today’s Digest,w e focus on that renewable diesel
program here.

• Moema

“During the second quarter of 2015, key power and steam
redundancy projects were successfully completed which, along with
other ongoing work at the facility, has led to significant
improvements in power and steam reliability and allowed us to
establish fully integrated operations on a more consistent basis.
We are currently focused on optimizing and enhancing fully
integrated operations from fermentation to oil production and
improving overall performance.”

The Digest’s Take

Demand will come. One key for Solazyme is application
development, as more cost-effective production capacity comes
online.

But most importantly, keeping the dialogue intact when it comes
to giving companies and individuals reasons to make low-carbon,
sustainable sourcing “table stakes” for the future of all
companies. At points in their evolution, Starbucks and Apple
rightly concluded that no one makes the argument for new ways of
looking at “commodity experiences” better than companies that have
better solutions — and that case must be made all across the
supply chain, especially including consumers who have little
influence on supply chain decisions but have the ultimate power
over supply chain policy.

June 30, 2015

Leather Without The Cow

In Canada, BioAmber (BIOA)
announced that the Flokser Group has successfully developed an
innovative artificial leather fabric using bio-based materials
supplied by DuPont (DD)
Tate & Lyle Bio Products and BioAmber.

Flokser’s artificial leather fabric has 70% renewable content and
delivers improved performance. It provides better scratch
resistance and has softer touch than current synthetic leather
fabrics made with petroleum derived chemicals. The global
addressable market opportunity for these bio-based polyester
polyols in artificial leather is estimated to be 330 million
pounds per year (150,000 metric tons); a 165 million pound market
for bio-succinic acid and a 165 million pound market for
bio-1,3-propanediol.

The background on biobased artificial leather

Historically, artificial leather has been popular with cows, but
not always with consumers or environmentalists. Brands abound,
including Biothane, Birkibu, Birko-Flor, Clarino, Kydex, Lorica,
Naugahyde, Rexine, Vegetan, and Fabrikoid. Most include
petroleum-based ingredients such as polyamide, acrylic, and
polyvinyl chlordie.

Back in May 2014, BioAmber CEO Jean-François Huc tipped the new
work then underway on artificial leather, stating: Huc comments:
“Over the past year we worked with a number of innovative
companies that validated our Bio-SA in several new applications.
For example, in artificial leather they demonstrated that the
polyester polyol made with Bio-SA offers better aesthetics
including softer touch than the polyols made with adipic acid.
This market reportedly consumes 150,000 tonnes of adipic acid
annually.

Back in December 2013, Green Dot announced developed a
compostable synthetic leather made with the company’s Terratek
Flex bioplastic. The new synthetic leather combines the look and
feel of high quality leather with a lighter environmental
footprint compared to traditional leather tanning or synthetic
leather manufacturing. The material can be returned to nature if
placed in a composting environment when its useful life is over.
Initial trials have been completed with manufacturing partners in
the U.S.. The new synthetic leather can be made in a wide range of
colors, textures and thicknesses with a variety of naturally
biodegradable backings.

In June 2012, Suzanne Lee has developed a “vegetable leather”
fabric made using bacteria, green tea, sugar and yeast. The
material can be cut, dried, molded and sewn. The product has a
life expectancy of five years, at which point it will rot and
harden, but not to worry, as it can be composted with a standard
home garden composting system.

Reaction from the stakeholders

“We have been working over the years on sustainability and have
made remarkable steps, including producing first in Turkey
phthalate free artificial leather polyurethane systems. We strive
to work with global best in class companies to shape the future.
Working with BioAmber and DuPont Tate & Lyle has helped us to
generate fresh ideas and develop new products that offer a unique
combination of performance and sustainability for our industry,”
said Ekin Tükek, Flokser Group board member.

“We are pleased with this new product launch in a major
industrial segment of the polyurethane market, and we believe that
working with Flokser, an industry leader, will drive market
adoption. This new artificial leather fabric is a unique product,
combining renewable content with the highest standards of
performance and quality”, said Steve Hurff, VP Marketing and
Sales, DuPont Tate & Lyle Bio Products.

Amyris, Cosan JV Launches 100% Renewable Base Oils

In California, Novvi
unveiled two new 100 percent renewable base oil products, a 100
percent renewable polyalphaolefin (PAO) Group IV and a 100 percent
renewable version of its NovaSpec Group III+ base oil. Both will
be manufactured at the company’s production facility in Houston.

Base oils are blended with additives to make the engine oils and
lubricants sold on the market today.

So, here’s the technical scoop. Novvi’s 100 percent renewable PAO
is a clean, direct replacement for conventional Group IV PAO base
oils derived from petroleum and natural gas. Novvi notes that it
is “the first company to commercialize high-performance PAO oil
from renewable materials,” and said that its streamlined supply
chain drastically “reduces capex costs considered standard in the
industry by bypassing upstream processing steps required by
petroleum PAO.”

The global polyalphaolefin market

What you need to know, in general, is that it is one of those
“small-volume, high-margin” markets that equity analysts point to
approvingly when they give kudos to advanced biotech companies for
finding a breakout early product. The iPhone comes later, first
comes the Apple I.

Specifically, according to Transparency Market Research, Group IV
& V Lubricants (PAO, PAG and Esters) Market – Global Industry
Analysis, Size, Share, Trends and Forecast, 2012 – 2018,” the
Group IV & V lubricants demand was 624.6 kilo tons in 2011 and
is expected to reach 752.9 kilo tons in 2018, growing at a CAGR of
2.76% from 2013 to 2018. TMR notes that “Group IV & V
lubricants have been growing at a faster pace than mineral-based
lubricants as they are more fuel efficient and can be used in
extreme operating conditions. In addition, there has been positive
regulatory support for the development of Group IV & V
lubricants from various agencies.”

The leap from 50% to 100% blends

There were three main drivers,” Novvi CEO Jeff Brown told The
Digest. “First, there was pull from customers who want to be as
green as possible, and don’t want to be 50 percent, they want to
be 100%. That was a big part of it.

“Also, there are a lot of customers are blending to a renewable
content spec. For example, once you get to 25 percent, you can
have a Biopreferred label, and customers want to hit that point
efficiently, so they prefer to blend on their own. That way, they
have the freedom to hit their targets, and for some it is 50, 70
or 80. So, this gives them blend flexibility, especially
considering that a finished product can be made of a blend of
several base oils.

“The last piece is great for industry, and that is creating value
in the renewable content. There is value in green, and if it more
valuable to be at 100% than 50% because of some of the factors
we’ve discussed, well, that’s something we should create a
structure around.

Market share driver or price premium?

We asked whether the value in green was in driving market share
or whether there were price advantages.

“We see both, it depends on the product. If there is a high
renewable requirement or a tight clean spec, then there can be a
price premium.”

Who’s the customer?

We asked Brown if the demand for Novvi oils was primarily being
driven by customer-facing partners in the lubricants business or
primarily with blenders and formulators of ingredients.

“We work with customer-facing strategic partners in both, the
base oil business and the finished lubricant side.”

What about the business model – is Novvi manufacturing or is
licensing in the offing? “We’re doing the manufacturing now but we
have a variety of partnership structures with customers, and we
will scale production through strategic industry partnerships.”

Will we see expansion of that manufacturing capacity, given the
new launches? “Yes,” Brown said, “we have expansion plans on the
manufacturing side. First though, we want to move through the
product launch period. But we continue to see the market build,
and we are seeing the product work, and product adoption.

Policy supports

In the rush to support the creation of renewable fuels, sometimes
the afore-mentioned “small-volume, high-margin” products get
overlooked as targets for policy supports — especially critical
for young industries starting with smaller production scales.
What’s on the “policy shopping list” for Novvi, if anything, we
asked Jeff Brown.

“Novvi is not built to rely on policy support; we can compete on
price. But with that said a lot of things can help. To give an
example, one of the single biggest factors is a country’s fuel
economy standard. The higher those are, the higher performing
lubricants are required, so we are an enabler for OEMs and large
global players. Beyond that, an eco-label spec and laws on
toxicity are helpful.

Policies that sound minor can be huge game-changers. For
instance, there’s the new Vessel General Permit guidelines – the
VGP.

[Readers, please note:
The EPA oversees the Vessel General Permit,
and new regulations issued in December 2013 affected all
commercial vessels longer than 79 feet in length. The EPA
advises: The 2013 vessel general permit requires the use of an environmentally
acceptable lubricant for all oil to sea interfaces
for vessels unless technically infeasible. The intent of this
new requirement is to reduce the environmental impact of
lubricant discharges on the aquatic ecosystem by increasing the
use of environmentally acceptable lubricants for vessels
operating in waters of the United States…Use of environmentally
acceptable lubricants results in discharges that biodegrade more
quickly and are less toxic than their traditional mineral oil
counterparts. For all applications where lubricants are
likely to enter the sea, environmentally acceptable
lubricant formulations including using vegetable oils,
biodegradable synthetic esters or biodegradable polyalkylene
glycols as oil bases instead of mineral oils can offer
significantly reduced environmental impacts from those
applications.]

The VGP offers a staggering potential in volume, and last week
the Obama Administration issued new regulations on clean water and
protecting streams. Traditional mineral oils can be detrimental to
the water supply, so we are seeing a lot of legislation under
consideration, for example in California. “But we’re not waiting
for anything,” Brown hastened to add.

Comments from industry observers

“Renewable oils offer customization of specs and performance that
differentiate them from conventionally produced oils,” said Pavel
Molchanov, senior vice president and equity research analyst at
Raymond James. “A renewable oil that competes on performance and
price is well positioned for the multibillion dollar lubricant and
base oils market.”

“If a company could make the same quality PAO with a different
feedstock, they could dramatically change the market. Customers
would run to them,” said Joe Rousmaniere, director of business
development at Chemlube International.

The Bottom Line

To relate an anecdote that has absolutely nothing directly to do
with Novvi, or lubricants, but illustrates a point, this week some
71 years ago Brig. Gen. Theodore Roosevelt Jr., the senior US
commander was traveling with the first wave of soldiers landing at
Utah Beach on D-Day. With strong tides and seas that day,
Roosevelt’s landing craft arrived a mile away from the
carefully-selected objective. Whoops. After surveying the options,
Roosevelt coolly announced, “We’ll start the war from right here.”

Which is to say, the advanced bioeconomy revolution was not
exactly planned around the battle for global market share in base
oils. But it makes a very nice beachhead. Good for Novvi.

May 07, 2015

Amyris Reaches Positive Cash Flow

Jim Lane

In California, Amyris announced positive cash flow of $1.7
million in the first quarter despite negative currency effect of
$1.2 million. Overall, Amyris recorded Q1 2015 non-GAAP cash
revenue inflows of $30.3 million, compared with $17.9 million for
Q1 2014. Total Q1 2015 revenues were $7.9 million, an increase of
30% compared with same quarter last year. Cash, cash equivalents
and short-term investments of $44.9 million at March 31, 2015, an
increase from $43.4 million at December 31, 2014.

“We’re pleased with our continued execution toward diversifying
and growing our revenue base through an expanding number of
collaborations and product commercialization efforts,” said John
Melo, Amyris President & CEO. “During the quarter – and, more
recently – we announced several key examples of these efforts,
including several market opportunities in the cosmetics, biopharma
and performance materials areas of our business. We are also
seeing signs of increased end-user demand pull through in
cosmetics for our squalane product as customer demand reported
from our formulation partners is exceeding expectations.”

Continued Melo, “We’re experiencing strong early response and
acceptance of our new product introductions and expect a strong
second half in product revenue and collaboration inflows with
strong support for delivering on our 2015 cash revenue inflows
target of between $100 million to $110 million.”

Pavel Molchanov, Raymond James

After a period of retooling while in the “overpromise and
underdeliver” penalty box, 2013-2014 were Amyris’ first years with
operations truly in commercial mode, and 1Q15 marked the first
quarter in the company’s history with operating cash flow in
positive territory. That said, historical reliance on
partner-based R&D payments makes quarterly financials choppy.
In fact, this is a notable milestone for the overall bioindustrial
space, since just about all the pure-plays (public and private)
have historically been in cash-burn mode.

In addition to updates on the production ramp-up at the Brotas
plant, the market wants to see more clarity on the pace at which
Total will be scaling up its fuels JV with Amyris – a questionable
prospect in the context of the oil and gas industry’s current
period of austerity. Guidance for 2015 remained at $100-110
million of total cash revenue inflows, fairly balanced between
product sales and R&D revenue. We maintain our Market Perform
rating with a a DCF value of $2.71/share.

Jeffrey Osborne, Cowen & Company

Revenue and GM is expected to improve in the 2Q15 & 2H15 with
the launch of two new products, Biossance and Muck Daddy. We see
these products as important milestones in Amyris’s continued
journey to commercialize its science. Looking further into 2015,
Amyris will focus on growing top line sales through the expansion
of its product portfolio, with focus on developing products to
access greater downstream value and expanding its existing
portfolio to new markets. Management expects revenue to accelerate
in the 2Q15 and beyond, in line with the launch of the Biossance
and Muck Daddy product lines as well as forecast improvement in
the diesel sector. Revenue was impacted by the continued
sluggishness in the diesel business. Marklet Perform, Price
Target: $2.50

April 05, 2015

More Gevolution

The
results from Gevo’s (GEVO)
4th quarter are in, and a worth a look-see, not only for fans of
isobutanol and its prospects.

Also for a look at how this member
of the 2010-12 IPO group of companies is crossing the multiple
Valleys of Death that have arrayed before it.

In the fourth quarter of 2014, Gevo continued to
progress the commercial operation of isobutanol at Luverne under
the Side-by-Side mode of production (SBS), meeting its stated
milestone in December 2014 of producing greater than 50K gallons
of isobutanol in one month. This achievement, Gevo notes, “was a
result of the introduction of Gevo’s second-generation yeast
biocatalyst at the plant, as well as significant process
improvements learned by Gevo since switching the plant to SBS
production earlier in 2014.”

The good news there is well highlighted by Gevo. We’ll note that,
ultimately, the Luverne facility has a 15 million gallon or so
theoretucal capacity for isobutanol, based on the guidance we’ve
had from experts over the years. Right now, one production train
out of four is engaged in isobutanol, so the company could be
producing at a 200K gallon/month rate, or 2.4M gallons per year.
So. there’s a ways to go.

Where do you get in the end?

Gevo says: “The data generated at the Luverne plant and in the
labs in Denver continues to support ultimate, optimized isobutanol
production costs that would support EBITDA margins for isobutanol
of $0.50-$1.00 per gallon. In the fourth quarter, Praj Industries,
a global leader in process engineering and equipment manufacturing
for the ethanol and brewing industries, conducted extensive due
diligence at the Luverne plant, and has confirmed these cost
projections.”

And it’s worth noting that Praj subsequently signed
a memorandum of understanding (MOU) wherein Praj will
undertake to license up to 250 million gallons of isobutanol
capacity for sugar-based ethanol plants over the next ten years —
so, that’s a pretty strong affirmative although 10 years could be
read as “not tomorrow, bub.”

The licensing expands

After a long couple of years of optimization, Gevo’s focus has
turned decisively towards licensing. In addition to the Praj MOU,
Gevo signed a letter of intent (LOI) in the fourth quarter to
license its technology to Highland EnviroFuels’ sugar cane and
sweet sorghum project based in Florida. These supplement the LOIs
that were previously entered into with IGPC Ethanol Inc.based in
Canada, and Porta Hnos S.A. based in Argentina.

What’s the conversion rate of LOIs and MOUs into actual biding
agreements that will be inked in 2015. Gevo says it is is
targeting “at least one licensee” this year.

Expanding partner set, especially in fuels

In Q4, Gevo highlighted partenrships with Brenntag Canada, who
began sales of isobutanol to the specialty chemical markets, and
Gulf Racing Fuels who have introduced isobutanol for use in
off-road applications, including sales to retail consumers through
NAPA Auto Parts in North Dakota.

The testing was performed in collaboration with the National
Marine Manufacturers Association, the American Boat and Yacht
Council and several engine and boat manufacturers across the
industry, and was also supported by The US Department of Energy,
the Office of Energy Efficiency and Renewable Energy and Argonne
National Laboratory.

Expanding product set

Gevo announced the introduction of a new technology it has
developed to convert ethanol into a tailored mix of end-products,
including propylene and renewable hydrogen. “Preliminary technical
and economic analyses indicate that the products, sourced from
renewable feedstock, would be cost competitive with traditional
petrochemical approaches,” we

Partnership we didn’t hear as much about

The Coca-Cola partnership, subject of a paraxylene pilot in Texas
— nary a reference to Coca-Cola in the latest word from Camp Gevo.

Certifications

You can’t sell a fuel if it’s not registered and certified. How’s
it going there? “Gevo anticipates achieving both ASTM and MIL-SPEC
certifications for its jet fuel in 2015,” which it says “would
help accelerate the commercial adoption of Gevo’s product in both
the commercial and military jet markets,” and there’s no
disagreement there, although any expectations on specific volumes
and timings for those segments should be marked “speculative
grade” for the moment.

Plus, a consortium of “leading organizations from the
recreational marine industry” announced the completion of more
than four years of testing of Gevo’s isobutanol for use in boat
engines, and gave isobutanol a thumbs-up.

Capital calls

Speaking of “gas in the tank” how much does Gevo have?

The company “Ended the fourth quarter with cash and cash
equivalents of $6.4 million,” had Q4 revenues of “as compared to
$1.7 million for Q4 2013. No doubt there are going to have to be
more debt-raising or equity-raising activities, and relatively
soon, with a net loss of $11M for Q4.

“The conversion of alcohols to hydrocarbons is also generating
significant interest from potential strategic investors,” noted
Gevo CEO, Pat Gruber, perhaps tipping the direction the company
will take for capital raising. “The ability to produce cost
competitive renewable propylene, which is used in a multitude of
consumer products, as well as renewable hydrogen, have been “holy
grails” of the bio-based economy. We believe that we have an
effective proprietary technology to do this based on feedback from
partners and potential strategic investors.” he added.

Jeffrey Osborne at Cowen & Co writes: “Gevo’s revenue ramp
continued in 4Q14, bolstered by Side-by-Side operations at the
Luverne facility. Management focused on ethanol production at the
plant to generate additional cash. Isobutanol production continues
on a limited basis to support and seed customer demand as well as
validate the technology. Looking forward, Isobutanol licensing
could be an important revenue stream for Gevo.”

Osborne also noted that “Ethanol production at the Luverne
facility is generating the cash flows necessary to support the
business as isobutanol continues to mature… [and] the isobutanol
produced at the Luverne facility helps not only to meet existing
customer demand, but also increases the products visibility and
seeds new markets.”

Three good items in Gevo’s favor, in Osborne’s analysis. An
enterprise value of $62M vs market cap of $37M, suggesting that
Gevo is substantially undervalued. Net debt is shown at zero. and
short interest at a not-so-high 6.5%.

The final word

We’ll give the final word to Praj CEO Prahmod Chaudhari, who
says:

“Praj has conducted significant diligence on Gevo’s corn
starch-based isobutanol technology and we believe in the
technology. Isobutanol has a substantial market opportunity given
that isobutanol is a high performance biofuel that can solve many
of the issues of 1st generation biofuels. It also enables a true
biorefinery model wherein a number of specialty chemicals and
bio-products can be produced using isobutanol as a feedstock. We
look forward to creating a new opportunity for 1st generation
sugar-based ethanol plant owners, as well as accelerating the use
of 2nd generation cellulosic feedstocks to produce isobutanol.”

February 26, 2015

Amyris Expects Huge Sales Growth In 2015

Jim LaneThe first of the “2010-12 IPO kids” completes its
transformation to a lively, product-driven commercial company with
revenues in fragrances, emollients, solvents and fuels.

In California, Amyris (AMRS)
announced Q4 2014 revenues of $11.6 million and $43.3M for the
full year, a 5% increase over 2013, and Q4 net income of $58.0
million and $2.3 million for 2014 as a whole.

The company noted that product sales increased by nearly 50%
despite lower than expected fuel sales in the second half of the
year, due to drop in crude oil prices and currency headwinds.
Collaboration and grant revenues were lower due to timing of
government-funded project completion and previously outlined shift
from upfront to milestone collaboration payments.

“2014 was a transformative year for Amyris. We delivered on the
promise of our technology by manufacturing at industrial scale two
breakthrough molecules now used in a range of product sectors —
from consumer care to transportation. We realized record-low
production costs at our Brotas industrial biorefinery, further
reduced operating expenses and, with successful financing efforts,
achieved our strongest year-end cash position in three years,”said
John Melo, President & CEO.

“In 2015, we expect to build on our track record by expanding our
renewable product portfolio and, more importantly, expanding our
collaboration partnerships into new markets, such as
biopharmaceuticals. Based on our plans and current performance
during the first part of the year, we expect to achieve positive
cash flow from operations in the first quarter, paving the way to
exceed $100 million in total revenues for the full year,”
concluded Melo.

• Better-than-planned cash production costs for our first
fragrance molecule, meeting critical milestones for a leading
collaboration partner.

• In marketing, the company introduced several new products,
including a new emollient under our Neossance line; a
high-performance solvent for industrial cleaning under brand name
Myralene; and renewable jet fuel with our partner TOTAL, now
included in global aviation specifications.

• Operationally, Amyris upgraded the Brotas plant during current
sugarcane inter-harvest season, “allowing us to continue our focus
on reducing production costs in 2015.”

New financing

At the same time, Amyris announced that it entered into a Common
Stock Purchase Agreement under which Amyris may from time to time
sell up to $50 million of its common stock to Nomis Bay Ltd. over
a

24-month period. Amyris will control the timing and amount of any
sale of common stock to Nomis Bay, and will know the sale price
before instructing Nomis Bay to purchase shares. When and if
Amyris elects to use the facility, the company will issue shares
to Nomis Bay at an undisclosed discount to the volume weighted
average price of Amyris’s common stock over a preceding period of
trading days.

The company’s cash had dwindled to $43.4M by year end.

“This facility provides us with a flexible source of common stock
financing as our business grows, allowing us to strategically
manage whether and when to draw on the facility based on market
dynamics and other considerations,” said Melo.

Analyst reaction

Cowen & Company’s Jeffrey Osborne writes:

“Amyris posted soft Q4 results, with revenue of $11.6 mn down 25%
y/y and non-GAAP EPS of ($0.40) below Street of ($0.29). Soft
product sales were a function of timing and a decline in fuel
sales due to oil economics. The shift of collaboration revenues to
contract milestones provides better perspective going forward.
Management guided $100+ mn revenue for ’15, carried by an expected
record Q1.”

Raymond James’ Pavel Molchanov comments:

“Recommendation. After a period of retooling while in the
“overpromise and underdeliver” penalty box, 2013-2014 were Amyris’
first years with operations truly in commercial mode. There is
visible scale-up progress, but the historical reliance on
partner-based R&D payments makes quarterly financials choppy.
There was a sizable miss on the top line, with product sales
falling from 3Q’s $11.5 million to only $4.7 million, partly due
to dollar headwinds. Cash on hand ended the quarter at $43
million, down from $69 million as of 3Q.”

“Over the past month, Amyris entered two brand-new market
segments – both in the high-value, non-oil-levered category.
January marked the launch of industrial cleaning products based on
the Myralene renewable solvent platform, with the goal of selling
into the auto service market and other industrial end users.

“Even more intriguingly, the microPharm discovery and production
platform aims to provide the pharma industry with an integrated
process for developing therapeutic compounds. While microPharm may
seem like a departure from Amyris’ business focus, it’s worth
recalling the company’s past (pre-IPO) work on antimalarial drug
precursors.”

What does it cost and what does Amyris make on farnesene?

As Osborne noted: “Management has guided an ASP range of $6 to $8
per liter for 2015…with continued farnesene cost reductions, which
is now below $3 per liter in cash production cost.”

What is the product mix expected in 2015?

The Digest’s Take

We’ve watched Amyris through its period as the #1 Hottest Company
in the sector, through a value-crash after delays in getting to
commercial-scale production volumes, it’s “Comeback of the Year”
period in 2013-14 as it put production right, and now into its
first strong commercial flowering. A sense of excitement has
returned to the Amyris story — it’s become more about product
surprises and the upside than operational surprises and the
downside.

The cash production cost remains high. $2.50 per liter is going
to drive some exciting returns in niche markets such as fragrances
— and pharma opportunities will abound — but the larger markets in
chemicals and fuels will have limited exposure to Amyris products
for now.

Bigger and better?

Back in 2010, Amyris released some interesting figures on its
performance — of course, these were before full-scale production
got underway in Brotas. At the time, the company disclosed that it
had reached 16.8% farnesene yields. Maximum theoretical is 30%. We
haven’t heard much lately about actual production yields, but
usually somewhere around 85% of theoretical is a reasonable limit
in day-to-day operations, and that would put Amyris at around 25%
yields. Product recovery rate in 2010 was already 95%.

So that leaves the company with a pound of product from four
pounds of sugar, which would cost $0.56 (at the current sugar
price of $0.14 per pound) – and with 7 pounds of diesel in a
gallon — the big markets in fuels are going to be a tough
proposition for some time to come. And that’s not taking into
account the operation cost of the facility or the amortized capex.

But there are a number of caveats there. Firstly, Brazilian
projects do not buy sugar, they make cane sugar and the production
price can be somewhat lower, if cane yields are good. More
importantly, Amyris may not be making jet fuel from C15 farnesene
at all — but rather, might make it from C10 isoprenoids, where the
theoretical yields will be much higher.

To that end, it’s worth noting that Amyris still has on the books
agreements with Sao Martinho to build two new production plants
that would each be double the size of its first commercial
faciliity in Brotas — overall, a quadrupling of capacity and
better economies of scale.

In 2012, Amyris CEO John Melo addressed most of these hopes in
his springtime address at ABLC, projecting at the time that the
company would produce finished products in six verticals — fuels,
lubrivcants, polymers & plastic additives, home & personal
care, flavors & fragrances and cosmetics. We’ve seen most of
those product lines come to life, and the pharma route is a
seventh route to revenue for the company.

As Pavel Molchanov notes. “The market wants to see more clarity
on the pace at which Total will be scaling up its fuels joint
venture with Amyris – a prospect we have questions about in the
context of the oil and gas industry’s current period of
austerity.”

In two weeks, Melo will come back to ABLC with another major
address — and we’re looking forward to hearing more about the
Total JV, the potential for added capacity, the efforts to drive
down production costs that open new marlets, and the state of
efforts to unlock the large markets in fuels and chemicals that
will take Amyris along the road toward “billion-dollar company”
status.

February 05, 2015

Amyris' Missing Magic

by Debra Fiakas CFA

Since the end of August last year shares of renewable chemicals
developer Amyris (AMRS:
Nasdaq) have been in a steady decline. Since falling through a
line of price support near the $2.50 price level in early December
2014, it appears there is no safety net for AMRS. The stock
set a new 52-week low in the third week in January 2015.
Unfortunately, a popular technical indicator, the average
directional index, is providing a very strong indication that the
stock could fall even further. With its stock chart
providing no hints at a reversal in trend, Amyris could use a bit of
fundamental magic.

The company has made some progress in its plan to commercialize its
renewable chemical innovations. The company has developed a
line of industrial solvents based on a renewable hydrocarbon called
farnesene. Amyris is selling the line of solvents under the
brand name Myralene. Just the day before the stock set that 52-week
low price, management announced arrangements to market Myralene
through two automotive and industrial distributors with access to
over 35,000 points of sale. Apparently there is no magic in
distribution partnerships.

In early December 2014, Amyris received approval for its renewable
jet fuel by regulatory authorities in Brazil. The approval
makes it possible for Amyris to sell jet fuel made from its
proprietary biofene hydrocarbon. Amyris also reported that a
study completed by a scientific journal has proved Amyris jet fuel
has a 90% smaller carbon footprint than fossil fuel. News that
Amyris was prepared to save the world from greenhouse gas emission
one flight at a time, did impress investors enough to create a very
bullish ‘engulfing’ pattern in AMRS trading the day after the Brazil
regulatory announcement, but the bullish sentiment was short
lived. Evidently, not enough fundamental magic is conjured up
through saving the planet.

Amyris is selling its jet fuel in Brazil on its own. For the
world jet fuel market, the company has entered into a partnership
with Total S.A. (TOT:
NYSE) , a world leader in energy production. Air France is
among the first to order the Total/Amyris biojet fuel. Air
France will use the fuel for its Lab’Line for the Future project,
which involves weekly flights between Paris and Toulouse powered by
biojet fuel. The flight-by-flight switch to renewable fuels
for commercial aircraft is thought to facilitate chemistry
development and production capacity expansion by innovators like
Amyris. AMRS has lost 9.5% of its value since the Air France
announcement, making it clear there is little to no magic in a world
class customer relationship either.

What might be putting a damper on investor enthusiasm is the Amyris
balance sheet. In the twelve months ending September 2014, the
company used over $100 million to support operations. Amyris
has been relatively well fortified with cash resources by its
various venture investors. However, the bank book is looking a
bit thin. At the end of September 2014, Amyris reported a
total bank balance of $68.6 million. At the rate Amyris
management had been going through cash, its cash hoard will last
until about June 2015.

The dark threat of dilution is often exposed by dwindling cash
resources as investors fret over the time line to breakeven and
whether cash can last to that point. Dilution anxiety can
dampen even the most impressive magic show.
Debra Fiakas is the Managing Director of Crystal Equity
Research, an alternative
research resource on small capitalization companies in selected
industries.

January 07, 2015

5 Minute Guide to BioAmber

Company description

From the company’s 2013 S-1: “Our proprietary technology platform
combines industrial biotechnology, an innovative purification
process and chemical catalysis to convert renewable feedstocks
into chemicals that are cost-competitive replacements for
petroleum-derived chemicals. The development of our current
organism was originally funded by the DOE in the late 1990s, was
further developed and scaled up, and optimized at the large-scale
manufacturing facility in France.

“We manufacture our bio-succinic acid in a facility using a
commercial scale 350,000 liter fermenter in Pomacle, France…We
have produced 487,000 pounds, or 221 metric tons, of bio-succinic
acid at this facility…We believe we can produce bio-succinic acid
that is cost-competitive with succinic acid produced from oil
priced as low as $35 per barrel, based on management’s estimates
of production costs at our planned facility in Sarnia, Ontario and
an assumed corn price of $6.50 per bushel.

“We have secured funding to construct the initial phase of our
next global-scale facility in Sarnia, Ontario and we intend to
build and operate two additional facilities, one located in
Thailand and the other located in either the United States or
Brazil.

Rankings

30 Hottest Companies in Biobased Chemicals & Materials: #9,
2014-15

The Situation

Last May, we wrote: “What is exactly so special about a company
making roughly 65 million pounds of a little-known renewable
chemical, with a historically tiny global market? After all, that
is roughly equivalent, by tonnage, to a 10 million gallon
first-gen biofuels plant — the kind that generally closes down
these days because of a lack of economies of scale.

There are three reasons that we are looking carefully at
BioAmber.

First, as former DOE Biomass Program Manager Paul Bryan opined at
ABLC last year: “Focus on the right products first.” Bryan keyed
in on biosuccinic in his ABLC presentation, highlighting the
opportunities and advantages relating to the utilizing the oxygen
in biomass.

Second, BioAmber is avowedly pursuing a strategy based in careful
aggregation of strategic partners that bring investment and
offtake as well as financing relationships, while building further
applications for their molecules in work with R&D partners
that could be expected to translate into commercial partners down
the line. Which is to say, starting with an economically and
environmentally advantaged molecule and then working in
partnership with downstream customers to establish markets for
that molecule.

Third, the process is cost-competitive with $35 oil.

Bottom line: It’s very different than the conventional biobased
fuels strategy, which has been to set mandates to create market
certainty, and use that to create a favorable financing
environment, and encourage engagement with incumbents.

2.In July, BioAmber priced a 2.8M share offering at
$12.00 per share, and raised $33.6M. The company granted the
underwriters in the offering a 30-day option to purchase up to an
additional 420,000 shares of its common stock. Net proceeds, after
underwriting discounts and commissions and other estimated fees
and expenses payable by BioAmber were approximately $31.1 million.

3. In July 2014, the company announced a 210,000 ton per year
take-or-pay contract for bio-based succinic acid with Vinmar
International.Under the terms of the 15-year agreement, Vinmar has
committed to purchase and BioAmber Sarnia has committed to sell
10,000 tons of succinic acid per year from the 30,000 ton per year
capacity plant that is currently under construction in Sarnia,
Canada.

It was just last week that the company announced a 210,000 ton
per year take-or-pay contract for bio-based succinic acid with
Vinmar International.Under the terms of the 15-year agreement,
Vinmar has committed to purchase and BioAmber Sarnia has committed
to sell 10,000 tons of succinic acid per year from the 30,000 ton
per year capacity plant that is currently under construction in
Sarnia, Canada.

4. In May 2014, BioAmber announced a contract to supply a minimum
of 80% of PTTMCC Biochem’s total bio-succinic acid needs until the
end of 2017. PTTMCC Biochem is a joint venture established by
Mitsubishi Chemical and PTT, Thailand’s largest oil and gas
company, to produce and sell polybutylene succinate (PBS), a
biodegradable plastic made from succinic acid and 1,4 butanediol
(BDO). The JV partners are building a PBS plant in Map Ta Phut,
Rayong, Thailand that will have an annual production capacity of
20,000 tons, and is expected to be operational in the first half
of 2015. The PBS plant in Thailand will consume approximately
14,000 tons of succinic acid per year at full capacity — under the
new agreement, BioAmber could supply a minimum of 11,200 tons of
bioisuccinic acid if that PBS plant operates at full capacity.
BioAmber plans to supply PTTMCC from its 30,000 ton per year plant
under construction in Sarnia, Canada.

5. In May 2013, BioAmber announced the pricing of its initial
public offering of 8 million units consisting of one share of
common stock and one warrant to purchase half of one share of
common stock at $10 per unit, before underwriting discounts and
commissions.

6. In September 2012, Inolex launched a new range of 100% natural
and sustainable emollients, using bio-based succinic acid from
BioAmber. The market for personal care esters is valued at over
$500 million. The new succinate emollients are highly-versatile
because of their sensory properties and outstanding ability to
disperse pigments. These fluids can be used in skin care, hair
care, color and antiperspirant products to provide shine and a
light fast-drying emolliency. These emollients are suitable as
alternatives to silicone fluids for improving skin-feel, as well
as enhancing shine and texture in hair care products. In natural
formulations, they can be used to reduce the greasiness of natural
oils.

7. In February 2012, NatureWorks and BioAmber, announced the
creation of their AmberWorks joint venture to bring new
performance bio-based polymer compositions to market. NatureWorks
brings to the joint venture a global commercial presence,
established customer relationships, developed applications across
a breadth of industries and deep experience in commercializing
new-to-the-world polymers. BioAmber owns PLA/PBS compounding
intellectual property and applies award-winning biotechnology and
chemical processing to produce renewable chemicals.

8. In February 2012, BioAmber raised $30 million in its Series C
round of financing with $20 million invested in November by Naxos
Capital, Sofinnova Partners, Mitsui & Co. Ltd. and the
Cliffton Group, and a second tranche of $10 million on February
6th, 2012 closed with specialty chemicals company LANXESS.
BioAmber and LANXESS are jointly developing phthalate-free
plasticizers and expect to begin sampling succinic-based
plasticizers in 2012.

Major Milestone Goals for 2015-17

1. Moving beyond succinic. The market for succinic acid itself is
relatively small. The key to BioAmber (and other developers, like
Myriant) is finding a market for biosuccinic as a “drop-in”
replacement for other, incumbent petroleum-based chemicals,
addressing what BioAmber termed “a more than $30 billion market
opportunity.” That claim is yet to be proved — and the hard yards
of commercialization lay ahead for the company to develop novel
markets at scale.

“We intend to convert bio-succinic acid to bio-BDO and THF, which
are large volume chemical intermediates that are used to produce
polyesters, plastics, spandex and other products.

“We intend to use our bio-succinic acid in the production of PBS,
which enables this polymer family to be partially renewable, and
modified PBS, or mPBS, which provides these products with higher
heat distortion temperature and improved strength.

2. New commercial plant. “We have begun early works on the site
in Sarnia including hooking up to the water and sewer system under
Vidal Street,” says the company’s Executive Vice-President Mike
Hartmann. “The $80 million project is being constructed at the
LANXESS Bio-Industrial Park in Sarnia.

The site is located in a large petrochemical hub with existing
infrastructure that facilitates access to utilities and certain
raw materials and finished product shipment, including steam,
electricity, hydrogen, water treatment and carbon dioxide,” the
Sustainable Chemistry Alliance newsletter reported. The plant was
expected to open in 2014. The company also intends to build a
second North American plant by 2017,

Business Model:

“For future facilities, the company writes, “we expect to enter
into agreements with partners on terms similar to those in our
agreement with Mitsui and we intend to partially finance these
facilities with debt. We expect to use available cash and the
proceeds of this offering to fund our initial facilities, as well
as our commercial expansion and product development efforts. For
additional future facilities, we currently expect to fund the
construction of these facilities using internal cash flow and
project financing.”

November 20, 2014

Amyris' Date With Destiny: Better Late Than Never

Jim Lane

Amyris was dismissed by the critics some time ago, but is ately
continuing a big comeback.

We have become so accustomed to receiving obituaries of Amyris (AMRS)
that recently I was inspired to re-read the Devotions of
John Donne to discover if, in fact, he wrote, “Send not to know
for Whom the Bell Tolls, it Tolls for Amyris.”

Amyris, we were recently assured by short-sellers, was as dead as
a doornail, just as Jacob Marley was reputed to be in the opening
stave of A Christmas Carol — and it is therefore enough
to startle the angels when the quarterly earnings roll in and we
read that not only is Amyris alive and well, sales are up 177% for
Q3 (compared to Q3 2013), the company is expanding to a second
molecule, and expects “cash payback on its Brotas plant” by 2016.

It is tempting to see the story of Amyris as one of unexpected
redemption, a rescue from Hades effected by the miraculous
intervention of Olympian gods, as if Orpheus had gone down to the
underworld and rescued biobased farnesane from certain oblivion.

But it probably is more of a mundane case of Chicken Littles
amongst industry observers— the plant was not ready for prime-time
when first launched, a gigantic learning curve was embarked on in
the harsh light of public company reporting, and what we are
seeing is success delayed, rather than the deliverance of a soul
from the underworld. Turns out that Chicken Little, in looking at
the 10-Ks and declaring that the sky was falling in, was wrong yet
again.

Now, if the company spent a considerable amount of time in the
penalty box, that it understood — this market in these times is
always happy to whack a technology stock that mistimes the forward
projection of its arrival at break-even. There is little doubt
that the Amyrisians up in Emeryville would like to have arrived in
2012 where they are today, and that they have been chopped up in
the public markets for running the trains late — and running the
trains on time, as we might recall, even propped up Mussolini’s
reputation for a number of years. It is a virtue never to be
discounted.

But there is indeed good news from Planet Amyris, and we are
delighted to see it.

The New Molecule

On the molecule front, Amyris is now selling, via its global
distributor network, a second renewable ingredient under its
Neossance brand. Neossance Hemisqualane is a pure, plant-derived,
light emollient with high spreadability and proven performance
characteristics. Amyris touts that “this ingredient addresses the
mid-price emollient market with better performance and competitive
pricing compared to existing products in this large and growing
market.”

Chief Business Officer Zanna McFerson adds: “Building on the
success of our Neossance Squalane product, and after positive
reaction from more than fifty customers who sampled our new
hemisqualane product, we are expanding our Neossance portfolio of
ingredients with another high performance solution for the
cosmetics industry.”

What is hemisqualane, again?

If you have not quite yet mastered hemidemisemi, er, hemisqualane
— you might not have memorized exactly what an emollient is,
either, unless you have been spending more time with QVC or the
Home Shopping Channel than might be good for you. An emollient is
a moisturizing skin cream that softens and relaxes.

Back in the days when I was gainfully working at ELLE magazine,
we would have regarded the arrival of a new, high-performing
emollient right before Christmas as evidence that Santa Claus
exists and that no hope for a year-end bonus is too outrageous as
long as it is grounded in the desire of people to have
youthful-looking skin well past the age of 115.

Amyris adds:

“Neossance Hemisqualane is a natural alternative to
petroleum-based paraffins and silicone ingredients. Neossance
emollients offer many high-performance properties that make them
ideal ingredients across beauty categories including skin, hair,
sun care, makeup and cleansing.

“In skin care, hemisqualane’s great sensorial profile and high
spreadability create elegant and light textures with a non-tacky,
non-greasy and smooth finish. Hemisqualane has a soft and silky
after-feel with the ability to maintain a persistent emollience on
the skin, making it a superior ingredient for many skin care
products. In addition, its ability to dissolve crystalline UV
filters makes it an ideal ingredient for sun care products.

“In makeup, hemisqualane facilitates a smooth and even
application for lipsticks and foundations due to its high
spreadability. It also demonstrates excellent cleansing properties
for makeup removal applications including for waterproof
formulations like mascara.

“For hair care, hemisqualane has good slip and a soft after-feel,
which are critical attributes for products like conditioners and
styling products.

Not surprisingly, Amyris touts: “We are very encouraged by the
early response and demand we are experiencing from some of the
leading brands in Japan, the Americas and Europe.”

Face vs fuel

Now, we’ve written much about food vs. fuel — who hasn’t? But
there’s been less written about “face vs fuel” which is to say,
why are companies like Amyris that were supposed to make jet fuels
and diesels on the road to massive impact on bottom line and
society, making emollients?

Keep in mind that squalane is a hydrocarbon, and a terpene — and
if you visited ABLC Net this past week you would have received
quite an earful regarding the bridge between flavorings,
fragrances and high-performance fuels that exists in the world of
terpenes. There must be more than 50,000 of them in nature — and
when you are delighted by the fresh scent of Ponderosa Pine as you
trek through California’s natural wonderlands, you are in fact
getting a whiff of terpenes. They are advantaged hydrocarbons, as
well, when it comes to super-dense fuels — and farnesane, which is
Amyris’ primary pivot point, is already a source of fuels via its
partnership with Total and we may well see some large-scale
production of same before the end of the decade.

But for now, Amyris is all about generating business, and as most
of us holiday shoppers have observed, fragrances are selling at
just a teency bit of a premium over diesel. Like $100 for 3.5
ounces, vs $3.50 a gallon.

The financials

Accordingly, as Amyris ramps up production, the operating results
of the company have a tremendous focus on the chemicals side.

Cowen & Company’s Jeff Osborne writes:

“Amyris reported strong operational improvements in 3Q. Product
revenue of $11.5 mn was up 177% y/y due to strong fragrance
strains; however jet fuel sales appear to be ramping slowly due to
regulatory delays. The company now expects to be cash flow
positive in 2015 versus late 2014, due to a change in
collaboration inflows. Brotas appears to be running well and cash
cost is targeted at below $3/L.

He added: “Amyris introduced a new farnesene strain at the Brotas
refinery during the quarter, which should allow sub-$3/L
production costs. We were pleased to see the company transition
from making high ASP fragrance oil to farnesene without any issues
or elongated downtime. The plant has run smoothly for 3 months,
which should allay some investor fears after an up down initial 15
months out of the gates.”

Looking forward, Cowen & Co expects:

“About $30 million of renewable product sales in 2014 and a
doubling of that in 2015, with a cadence of $10 mn per qtr in 1H15
and $20 mn per quarter in 2H15, as 6 new molecules ramp.
Management reiterated that Brotas will have reached a cash payback
by early 2016 as the company focuses on maintaining a total cash
gross margin structure over 60%

Osborne warns: “We are keen to see how the company handles
marketing 1 molecule in 1H14 to 2 currently to 8 by the end of
next year. (aided by an ASP of ~$10/L with gross costs below
$3/L).

Over at Raymond James, the always quotable Pavel Molchanov
writes:

“After a period of retooling while in the “overpromise and
underdeliver” penalty box, 2013-2014 have been Amyris’ first years
with operations truly in commercial mode. There is visible
scale-up progress, but the historical reliance on partner-based
R&D payments makes quarterly financials choppy. In addition to
updates on the production ramp-up at the Brotas plant, the market
wants to see additional clarity on the pace at which Total will be
scaling up its fuels joint venture with Amyris. We maintain our
Market Perform rating.

Molchanov highlights that expectations were “on” for Amyris to
reach break-even in late 2014 on a cash basis:

“The clear-cut aim was for cash flow to finally turn positive in
2H14. Following 3Q’s cash burn, the updated timeline is for this
milestone to be reached not right away but rather on a full-year
basis in 2015. Lower near-term collaboration inflows are the main
culprit for the pushout.

He adds: “It’s worth noting that Amyris is deliberately running
Brotas to avoid complications, particularly after the painful
experience of 2011-2012. Margins are emphasized over volumes, and,
as such, our model projects late 2015/early 2016 for achieving
full nameplate capacity at Brotas.”

On the recent downturn of stocks in the sector: “The stock has,
of course, shown weakness amid the oil price selloff – as have
essentially all other companies in the broad category of petroleum
substitutes. As a sentiment trade, it’s understandable, but as a
practical matter, there is virtually no linkage between the prices
of oil and farnesene/squalane. The current focus for Amyris – and
plenty of others in the bioindustrial space – is high-value
materials rather than commodity fuels, and until Amyris
establishes a meaningful footprint in the fuel market – unlikely
until 2017 at the earliest – the direct read-through from oil
prices for production economics is minimal.”

The Bottom Line

A new molecule, pushed out financials but nothing that deters
analysts from predicting imminent turn to cash-positive in 2015,
and an outlook that pushes on into larger-volume products later in
the decade, including fuels: that’s the welcome news from Amyris.

Turns out that the company was not as dead as once broadly
thought — but rather something of a late bloomer, and that’s not
always a bad thing — as Ronald Reagan’s many admirers will recall
that he only entered elective politics at age 55. He said
something else that might be well re-purposed to a discussion of
the Advanced Bioeconomy: “You and I have a rendezvous with
destiny. We will preserve for our children this, the last best
hope of man on earth, or we will sentence them to take the first
step into a thousand years of darkness. If we fail, at least let
our children and our children’s children say of us we justified
our brief moment here. We did all that could be done.”

November 11, 2014

Interview With Dan Oh, CEO Of Renewable Energy Group

Jim Lane

Leading a series this week, “The Strategics Speak", in which we’ll
look at what a number of major strategic investors see in the
landscape relating to industrial, energy and agricultural
investment, Biofuels Digest visited with Dan Oh, CEO of Renewable
Energy Group (REGI),
which has long been the US’s leading independent biodiesel producer
but in recent years has steadily diversified and expanded
operations.

In many ways, REG is the entire
industrial biotech business in a nutshelll. They’re fermentation
(through REG Life Sciences), and thermocatalytic (through REG
Geismar and their extensive biodiesel business). They use both
sugars and lipids as feedstocks. They make both biodiesel and
drop-in renewable diesel. They make fuels and an array of
chemicals. They’re in the distribution and blending business —
distributing their fuels blended with traditional fossil
distillates. They have multiple plants and labs in the West,
Midwest and Eastern sections of the country. They’re deep into
some of the most exotic commercial synthetic biology out there.

In other ways, they achieve what
others aspire to. Multi-feedstock, multi-product — it’s a reality,
not a goal. Publicly traded after a successful IPO — a reality.
Generating substantial cash flow — a reality. And don’t let the
“aw, shucks” demeanor fool you for a moment — if they don’t “talk
the talk” with the hyperbole of Silicon Valley, they “walk the
walk” when it comes to building capacity, building revenues, and
building reputation.

The Digest:
The company has substantially diversified, in recent years,
let’s start there.

Oh: That journey started in a practical sense in
2010, although we’ve always planned to be a broad energy &
chemicals company. We’re grounded as a team in the lessons and
disciplines of commodity agriculture, so we knew that we had to
have to have a lot of options, more than just one raw material
choice, adaptable technology, and many different products out of
that.

So, we started with one feedstock and expand across the lipid
spectrum, and in 2010 we started targeting other chemicals and
fuels, beginning of a long we’ve of diversification. To date,
we’ve invested almost $300m in diversification.

Lipids are a worldwide business as are sugars, and we are looking
for base platforms that wecan grow and adapt, with a focus on the
distillate area and the intermediate speciality chemicals. Right
now, we’re building out biomass based diesel across North America,
and ultimately taking it international, based on fundamental
internal growth, M&A,plus technology upgrading and innovation.
We’re generating great cash flow from advanced biofuels, and we
have array of technology options out there, so we have got so many
good choices that it is almost about what you’re not going to do
rather than what you’re going to do.

The Digest: After a successful IPO, you now find yourself
in a leading position when it comes to dialogue with Wall Street
about industrial biotech. How do you talk about these advanced
technologies there?

Oh: Money’s not brave. Wall Street want to see
profitable companies, they want to see the downside protected and
lots of upside. In our case, we are building an industrial
business that happens to be green, and I think we’re getting
credibility as an industrial company, with strong balance sheet,
and looking backwards, over 100M in EBITDA each year on average.
Our strategy is born from practical needs and experience, in the
end, you’ve got to run a business, and be subject to standard
finance practice just like everyone else, and let’s face it, all
companies have a hard time raising money [at this stage].

The Digest: In the past year you acquired LS9, now known
as REG Life Sciences, one of the hottest technology sets
available. How it is going?

Oh: LS9 was a bit more like late stage private
equity, there’s a body of work there that’s very good, now it’s
time to move to commercialization and become profitable. We think
the company will do better without, as a venture-backed company,
worrying about about where the next round of finance is coming
from, and not having to swing for the fences with a home-run
product right away. The LS9 technology has the ability to iterate
a lot of products, and on our side we have put together a platform
of 500 people — and there are a lot of PhDs here, master degrees,
these are not not minimum wage jobs here, this is a high talent
business — when you combine out platform of people and logistics
and distribution with a platform that can iterate a lot of
products, you can see how to get that technology and those
products into the market.

In many ways, these were two companies born of the same idea,
both were originally designed to make biodiesel, we started with
lipids, they started with sugars. The cool thing for us is that,
from their earliest days until today, they continue to improve the
tools, they are always innovating the science.

The Digest: The other major recent acquisition was the
Dynamic Fuels / Syntroleum business. What’s the latest there?

Oh: We’re very pleased with the investment, and
the transition from prior to current ownership, we’ve built from a
lot of great decisions from the prior owners, and what we have
been able to bring is a seamless commercialization team that
understands refining, plus we have brought our feedstock
pretreatment and refining technologies, and logistics system. It
takes a total effort to make any plant work — you can’t just have
a cool core technology. Now, as we have announced recently, we
have achieved 90% utilization compared to nameplate capacity.

The Digest: For years now — whether it is the Renewable
Fuel Standard, tax credits, or other aspects of energy policy,
there’s been an extended dialogue with Washington DC about the
advanced bioeconomy. Now, the midterm elections have swept
Republicans to power int he Senate. How do you see that dialogue
changing after the elections?

Oh: Advanced biofuels do have broad bipartisan
support, in each region and state there are a body of politicians
who see the benefits, and in general things come up on the “happy
and satisfied” side of the scale when they look at the sector.
we’ve talked wide and far to lots and lots of people,and we’re
confident that that support is going to continue, and in fact the
declining energy prices make it simpler for people to think about
the good aspects of our energy policy in energy security,
environment when there’s less extra cost pressure from energy, and
it is a heck of a lot easier to absorb costs [from advanced
technologies] into a low cost energy mix.

Our job is simple: we have to make quality fuel, we have to be
affordable, we have to compete. But every gallon of biodiesel
makes it easier to achieve the broader energy policy goals of
diversifying the energy mix — and the benefit of biofuels on the
agricultural sector are not difficult to see and there are more
sectors that are benefitting from it, such as advanced
manufacturing and high tech. Bottom line, you can be a hard core
neoconservative, hard core environmentalist, or only interested in
agriculture or some other industry, and you’ll find lots to like
about advanced biofuels.

The Digest: There’s been quite a bit of expansion, yet
you’ve spoken of international opportunities, should we expect
to see more from REG? And if you target international expansion,
will you be looking for advantaged feedstock, or a solid market,
or what other factors might be on your mind?

Oh: We’re not done growing, that’s for sure!
We’ve done something of consequence every quarter. We tend to be
product and logistics focused when looking at a new market — right
now we are long biomass based diesel, and the two biggest markets
are the US and EU, and our strength in lipids might feed into a
number of products there. But it’s not just a case of looking for
a good market, there are lot of good technologies developed
overseas, too. We look far and wide, we’ve not done anything but
we do state that “we are actively looking”, and we will lead with
things we do well, and we want to retain a fantastic group of
people that we have built up.

November 10, 2014

Ramp-Up Delay Sends Solazyme Stock Into Free-Fall

Jim Lane

Revenue and customer numbers are up at Solazyme (SZYM),
60% YOY growth from Q3 2013 to Q3 2014. But a slowdown in the
rollout at Moema capacity leads to a spectacular 58% one-day drop in
the stock price.

What happened?

Solazyme has been on a relatively steady downward trajectory for
the past few quarters, dropping from the $11-$13 range and down
into the $6-$8 range.

And then plunged a stunning 58 percent to $3.14 yesterday –
amidst downgrades by Cowen & Company, Pacific Crest and Baird
— generally to Market Perform or Neutral, and remains at
“Underweight” over at Piper Jaffray. Target stock prices have come
way down.

All this carnage, we might add, even after a signature
partnership with Versalis was announced to commercialize Encapso
dilling oils. Versalis said that its initial emphasis for Encapso
will be oil and gas fields operated by its parent company Eni,
which represent a significant amount of the world’s petroleum
drilling activity. Encapso will be featured as part of the
company’s recently launched Specialty Oilfield Chemicals product
portfolio.

What exactly gives for San Francisco’s [advanced bioeconomy]
Giants?

Here’s the news

Total revenue for the third quarter of 2014 was $17.6 million
compared with $10.6 million in the third quarter of 2013, an
increase of 65%. Third quarter GAAP net loss was $39.7 million,
which compares with net loss of $30.7 million in the prior year
period. On a non-GAAP basis, the net loss was $35.3 million for
the third quarter of 2014, compared with net loss of $22.3 million
in the prior year quarter. A reconciliation of GAAP to non-GAAP
results are included below.

“Progress at Moema is more mixed with
the upstream process operating as expected, while the downstream
process will require continued work to establish consistent, fully
integrated operations.”

Analysts would, as we’ll see later in this report, used this new
guidance from Brazilian operations as a catalyst to downshift the
revenue growth rate to around 15% for 2015, targeting $70M instead
of $350M.

Then this, on the company’s strategy.

“Commercially, we’re continuing to
establish our Encapso and AlgaVia products in the marketplace
while focusing additional attention on the development of higher
value specialty products,” Wolfson said. “Strategically, we’re
moving to intensify our focus on our high-value specialty
portfolio, a move that will alter the near-term trajectory of our
production ramp but which we believe will ultimately drive greater
value for the Company.”

CFO Tyler Painter summarized:

“Our near term focus is on bringing
Moema to fully integrated operations and focusing commercial
activity around our high-value specialty products. As we execute
on these goals, we are emphasizing prudent management of our
capital, optimizing our product mix and positioning our
manufacturing assets to maximize returns.”

Analysts would use this shift in strategy as further reason to
downshift revenue growth, push out the “reaching break-even date”
and raise the specter of a dilutive capital raise in 2015 to
ensure liquidity for the company on its elongated timeline.

In plain-spoken words

Moema’s delayed, the big volumes are now in 2016 or 2017, so
we’re shifting to higher margin, lower-volume markets.

What the analysts say

Pavel Molchanov at Raymond James expressed
“frustration” with Moema delay, but said the “strategy makes
sense” and saw value with the stock so far down. He wrote:

Downstream issues at Moema:
frustrating, but ubiquitous in the space. Production challenges
based on downstream processes at the Moema plant in Brazil are the
main factors behind the slower-than-expected production scale-up
and move down the manufacturing cost curve. Early costs at Moema
were both higher, and lasted longer, than originally anticipated.
Choppy power and steam operations – yes, something as prosaic as
that – are among the specific culprits. None of this, to be sure,
pertains to the core of Solazyme’s technology platform, but it’s
frustrating nonetheless.

Slow ramp spurs retooling of
production strategy. The operational shortfalls at Moema have led
to a rethink of the strategy for production expansion. The new
mantra – and E&P investors will be very familiar with this –
is “value not volume”. Solazyme will further narrow the product
range (and thus the scope of customers served), leading to lower
sales volumes but higher pricing and blended margins…All in all,
we think the strategy makes sense, even though the market clearly
does not like the top-line pushout (shares are down 20%
pre-market), and we continue to recommend buying the stock,
particularly on weakness today.

Jeffrey Osborne at Cowen & Company was
rethinking the models. He wrote:

Solazyme reported sub-par results for
Q314. Management’s shift from high volume capacity to lower volume
/ high margin sales comes as a surprise, in the wake of low ASPs
in its popular oils. Encapso and AlgaVia progress was stressed,
and 2015 sales were guided well below consensus. With the loss of
Moema as a catalyst, we are lowering our rating to Market Perform,
and our price target to $7

Management’s overhaul in business
strategy follows negative margins in typically lower margin
product areas. As a result, the company has guided for only a 15%
increase in 2015 revenue

The shifted focus to low-volume, high
margin sales, in tandem with operational benchmarks falling short,
is inhibiting the company from consolidating Moema’s operations in
2015 financials. This accounts for the ~$70 million in 2015
revenue guidance falling drastically short from our and consensus
estimates (we were at $350 million previously for 2015).

Management has noted that despite
delays, it expects to fully bring Moema onto its balance sheet in
2016, albeit not producing at the previously intended annual
capacity of 100k MT/yr. We expect the Moema run rate to fall short
of 20k MT/yr by 2016, given the change in strategy, as well as a
pause in the completion of the Clinton facility ramp. This could
prove ultra conservative; however, we would rather set the bar
low.

Meanwhile, Mike Ritzenthaler of Piper Jaffray
was trying out for Les Miserables. He wrote:

Start-up & reliability issues,
the slower pace of market adoption, and lower than expected ASPs
have substantially delayed execution timelines; management used
the conference call to reset investor expectations much lower.
Even with the technology working as expected, the timeline needed
to ramp the facilities (including Moema which is currently
experiencing operational issues) is well beyond previous
expectations. The business model shift toward value products
versus volumes is not surprising, but we continue to see material
risk from niche market development and a sizeable capacity
overhang (new partner Versalis is targeting ~3k MT of Encapso
sales, or ~2.5% of capacity). Further, we see a capital infusion
in 1H15 as likely and no longer believe that cash break-even in
FY15 is reasonable. We have made healthy cuts to estimates, which
result in a lower price target (to $2 from $4) and we maintain our
Underweight rating.

The anatomy of the stock’s free-fall

You can see it right here. The news came out last night, and
there was a huge imbalance in the buy-sell. The stock was routed
before trading started, opening at $3.85, and falling throughout
the day to a intraday low of $2.98 before rebounding to $3.14 at
the close.

We’ve seen it before. Pounding of earlier-stage stocks for any
delays in the march to break-even. Doubtless we’ll see it again.

Those are timing issues for investors — and legitimate for their
purposes, of course. But let’s focus on the larger story here —
while significant ramp-up risk is out there for the long-term,
investors have priced in almost zero revenue growth next year, at
this stock price, if we take the Cowen & Company analysis
which pegged a $4 target price to 15% growth.

Which makes this an opportunity for those who see in the Eni deal
the means of revenue growth that investors have discounted for the
near-term.

August 19, 2014

Amyris Aims For Huge Second Half

Jim Lane

The Pharaohs of Farnesene continue to pick up momentum.

In California, Amyris (AMRS)
reported a net loss of $35.5M for the second quarter of 2014 on
sales of $9.3M, with a 5.4 percent increase in sales over Q2 2013.
Renewable product sales were $4.4M for the quarter, while
“Recognized grants and collaborations revenues” reached $4.9M.

In announcing results, the company highlighted:

• End of quarter cash, cash
equivalents and short-term investments balance of $90.2 million.
• Lowest farnesene production costs to date and successful start
of fragrance molecule production.
• Addition of Braskem as a new collaboration partner for renewable
isoprene and Natura for cosmetics sector.
• Produced and shipped jet grade farnesane, now in use in
commercial flights at 10% blends with Jet A/A1.

In addition, the company affirmed guidance for doubling renewable
product sales year-on-year and achieving cash flow positive from
operations in second half of 2014. Specifically, Amyris expected
for 2014:

Inflows. Renewable
product sales to be over $32 million, doubling our 2013 renewable
product sales, and to achieve positive cash margin from products.
In addition, we continue to expect collaboration inflows, a
non-GAAP measure, in the range of $60 million to $70 million by
the end of the year.Expenses. Cash operating expenses for R&D and
SG&A in the range of $80 million to $85 million and capital
expenditures less than $10 million in 2014.Earnings. Positive cash flow from operations
during the second half of the year and to achieve positive EBITDA
in 2015.Payback. Cash payback for our Brotas biorefinery
in the next two years (following 2013 start-up year), based on
plant cash contributions of $10 million to $15 million in 2014 and
$40 million to $50 million in 2015.

“With two new collaboration partners, continued progress on
renewable product sales, and our best operational performance to
date, we’re well positioned to double our renewable product sales
this year over 2013 and deliver positive operational cash flow in
the second half of this year. In May, we completed a $75 million
convertible note financing and, since quarter-end, increased our
cash balance sheet with payments from our ongoing collaborations
as well as additional inflows from new collaborations,”said John
Melo, Amyris President & CEO.

“We rounded out our developing product portfolio for the tire
industry when Braskem joined our collaboration to develop and
produce renewable isoprene, and our expanded collaboration with
Kuraray for liquid rubber. With TOTAL, we obtained industry
certification for sales of our renewable jet fuel and have begun
sales of jet fuel. We continue to experience strong demand for
sustainable products that perform better than the alternative and
are cost competitive, while solving the supply challenges our
customers face in growing their business,” concluded Melo.

The analysts react:

Rob Stone and James Medvedeff, Cowen & Company

Q2 non-GAAP loss was
36c (vs. St. 30c) on $8.2MM (vs. St. $12.4MM). Product costs are
improving, but COGS reflected higher-cost inventory. New
collaborations and product segments are encouraging, raising our
PT to $3.50 (vs. $3.00), but expected product sales for 2014 are
heavily H2-weighted. Execution risk on a steep ramp and potential
dilution from converts keep us at Market Perform (2).

Product revenue of
$4.4MM missed our $7.0MM estimate. A new fragrance molecule was
not yet shipping. Three new products should launch in 2015, and a
total of 10 molecules supports expected growth.

Adjusting Our Model
for Smaller 2015 Ramp, Slower Cost Reduction. We now project
2014-15E losses of $1.01 and $1.23, on sales of $76.3MM and
$115MM, vs. prior ($0.64) and ($0.35) on $76.5MM and $196MM.

Pavel Molchanov, Raymond James & Company

After a period of retooling
while in the “overpromise and underdeliver” penalty box, 2013 and
2014 have been Amyris’ first years with operations truly in
commercial mode, and the outlook for the rest of 2014 (and beyond)
is encouraging. There is visible commercialization progress, but
the top line’s reliance (for now) on partner-based R&D revenue
makes quarterly results very choppy. We maintain our Market
Perform rating.

* Brotas: steady as she goes.
The 50 million liter Brotas plant in Brazil made its first
farnesene shipment over a year ago and is back online (following
its 1Q downtime). Recall, as of last November, the initial 2014
target has been for product sales to at least double – likely
conservative after last year’s shortfall. This target remains in
place, and our current “guesstimate” for product sales is $38
million for 2014, up ~2.5x.

* $3.50/gal diesel:
intriguing target, but we’ll believe it when we see it.
It is on the Total front that the most interesting revelations
came out of yesterday’s call. Amyris is working on a framework for
producing renewable diesel in Europe – as part of the fuels JV
with Total – with a long-term target cost of $1.00/liter, or
$3.50/gallon. The feedstock is… to be disclosed later, so we can’t
help but feel some skepticism. The working assumption is that the
first large diesel plant will start up in 2017, with two or three
by decade’s end. If true, this would solidify Total’s status as
one of the most active strategics in bioindustrials.

Valuation.
Consistent with peers, we apply a discounted cash flow approach to
arrive at a DCF value of $2.90/share.

The Digest’s take

The analysts don’t see much upside in the stock for now — a
ramp-up in price over the past year has absorbed most of the
short-term potential. It’s highly intriguing that the company is
targeting $3.50 diesel with a Total/Amyris plant as soon as 2017.
That’s big news, if it materializes — but we would expect a move
away from the spot Brazilian sugar market in order to facilitate
this. Cellulosic sugars would be appropriate targets for anything
sold in the aviation to avoid food vs fuel debates.

Under the terms of the 15-year agreement, Vinmar has committed to
purchase and BioAmber Sarnia has committed to sell 10,000 tons of
succinic acid per year from the 30,000 ton per year capacity plant
that is currently under construction in Sarnia, Canada.

“BioAmber is avowedly pursuing a strategy based
in careful aggregation of strategic partners that bring investment
and offtake as well as financing relationships, while building
further applications for their molecules in work with R&D
partners that could be expected to translate into commercial
partners down the line. Which is to say, starting with an
economically and environmentally advantaged molecule and then
working in partnership with downstream customers to establish
markets for that molecule.

“It’s very different
than the conventional biobased fuels strategy, which has been to
set mandates to create market certainty, and use that to create a
favorable financing environment, and encourage engagement with
incumbents.”

Expansion at Plant #2

As part of the new succinic acid master off-take agreement, this
second plant will be expanded to an annual capacity of 100,000
tons of bio-BDO and 70,000 tons of bio-succinic acid. Vinmar plans
to make a 10% or greater equity investment in the expanded plant
and has committed to off-take and BioAmber has committed to sell a
minimum of 50,000 tons per year of bio-succinic acid for 15 years
following the plant’s start-up date. Vinmar also has the option to
secure additional bio-succinic acid tonnage under the take-or-pay
contract if BioAmber has not committed the remaining volume at the
time the plant’s financing is secured.

Building a plant #3

Vinmar also committed to off-take and BioAmber committed to sell
a minimum of 150,000 tons per year from a new, third plant
following its financing, construction and commissioning. The plant
would be dedicated to bio-succinic acid production and would have
an annual capacity of 200,000 tons per year. Vinmar plans to
invest at least 10% of the equity in this third plant, which
BioAmber expects to start up in late 2020, based on the projected
development of the succinic acid market.

Expanding the BDO deal

In a related announcement, BioAmber and Vinmar also broadened the
scope of their previously announced 100,000 ton per year 1,4
butanediol (BDO) plant, which the parties currently plan to start
up in late 2017. Under that agreement, following the financing,
construction and commissioning of the BDO plant, Vinmar has
committed to purchase and BioAmber has committed to sell 100% of
the BDO produced for 15 years.

More than 100% of capacity sold out

The Vinmar take-or-pay contract, together with the take-or-pay
agreement signed in April 2014 with PTTMCC Biochem (a joint
venture between Mitsubishi Chemical and PTT of Thailand),
guarantees the sale of 50% of Sarnia plant capacity during the
first three years of operation and 33% of plant capacity for the
following 12 years.

In addition, BioAmber has signed 19 supply and distribution
agreements and seven MOUs to date, and the cumulative volume of
these contracts exceeds the available capacity for sale in Sarnia.
BioAmber has been selling bio-based succinic acid for over four
years and to date 38 customers have qualified the company as a
succinic acid supplier and purchased product from the existing
production facility in France.

June 02, 2014

Gevo Begins To Ship Missing Link For 100% Renewable Plastic Bottles

Jim Lane

From Colorado, news has arrived
that Gevo (GEVO)
is now selling paraxyleme to Toray (TRYIF),
one of the world’s leading producers of fibers, plastics, films,
and chemicals. It’s producing PX from isobutanol, one of its
three molecules in production (the others are jet fuel and
iso-ocrane) at its complex in Silsbee, Texas. Toray expects to
produce fibers, yarns, and films from Gevo’s PX.

While any new molecule attached to a major customer relationship
is always big news for any producer — this has special
significance. Let’s review exactly why.

PX is the missing ingredient in the production of a highly-sought
after material — 100% renewable plastic bottling.

What is plastic bottling? It is a
material called PET (For you purists: polyethylene terephthalate.
Say that three times real fast.) It’s a form of polyester that is
see-through, and is an excellent barrier material. Not much gets
through these little molecules.

Accordingly, it’s become the third most
widely-produced polymer in the world, after polyethylene and
polypropylene. PET makes up about 20 percent of the world’s
polymer production, and about 30 percent of that PET goes into
making plastic bottles. Global PET production is estimated at 20
million metric tons per year by ICIS — and is selling for right
around $1500-$1600 per metric ton this year.

So, an $30B+ market. Wow.

In steps Coca-Cola

Seeing high customer demand for more
eco-friendly product packaging, Coca-Cola (KO) introduced the
first-generation Plant Bottle in 2009, with up to 30 percent
renewable content. The company has now distributed more than 10
billion first-generation PlantBottle packages in 20 countries
worldwide, and is bullish on reaction from customers.

Why the
limit at 30% renewable content? That’s where PX comes in. It’s
PET is produced from renewable MEG (ethylene glycol) and PTA
(purified terephthalic acid). PTA in turn is produced
from paraxylene (PX), which until now has not been available from
renewable sources on a commercial basis.

If it can find or foster sources of
renewable PX, Coke aims for 100 percent plant-based packaging, at
scale, by mid-decade — and that means billions for the producers,
and the key to it all is renewable PX. It’s also worth pointing
out that
according to ICIS and Nexant, the global PET market is
facing huge overcapacity problems in the wake of large amounts of
new PTA capacity coming on line in China. So — a good, solid
market in renewable PET, safely protected from low operating
rates, plant shutdowns, and bad margins — well, it’s not only big
business, but great business.

The Toray relationship

The Toray
“buy” is the culmination of a multi-year effort that first
surfaced in 2012, when we reported that Toray signed an
offtake agreement for renewable bio-paraxylene (bioPX) produced at
Gevo’s (then) planned pilot plant. The agreement enabled Toray to
carry out pilot-scale production of bioPET, and the company was
able to offer samples to its business partners, last year. Using
terephthalic acid synthesized from Gevo’s bioPX and commercially
available renewable mono ethylene glycol (MEG), Toray had
succeeded in lab-level PET polymerization to produce fibers and
films samples in 2011.

Later came news that Coca-Cola was
stepping forward to invest in pilot plants at Virent, Avantium and
Gevo in pursuit of renewable plastic bottling — though Avantium,
in its case, would by using its YXY
chemical catalytic technology to produce an alternative
molecule, PEF, that it believes can provide equal or better
product performance to PET.

Why not just use, say, polyethylene?

Good news, Coke does, in Odwalla juice
products. Works for juice in the fridge. Does not work for
products outside of the fridge, especially carbonated ones.

Back to PX.

The PX was sold under a previously announced offtake agreement
with Toray. Toray also provided funding assistance for the
construction of Gevo’s PX demo plant at its biorefinery at South
Hampton Resources, where Gevo also produces other hydrocarbon
products such as renewable jet fuel and renewable iso-octane.

As a result of the shipment, Gevo will recognize revenue
associated with both the sale of the PX, as well as the initial
funding assistance provided by Toray for the project.

Gevo has also received support from The Coca-Cola Company for the
development of its renewable PX technology. Research and
development support was provided by The Coca-Cola Company under a
previously announced Joint Development Agreement.

“We greatly appreciate the support that Toray and The Coca-Cola
Company have provided Gevo in developing bio-PX. This is a
groundbreaking achievement that we are very proud to have
accomplished. This demonstrates that bio-isobutanol is truly a
building block for the renewable chemicals industry,” said Gevo
CEO Pat Gruber.

The business case

“In the case of a Gevo-retrofitted plant,
the biorefiner can produce biobutanol plus co-products, or
paraxylene and the same co-products – to give one example. Turns
out, in renewable fuels as well as elsewhere, it takes two
(products) to tango. Pricing moves around in these volatile
markets, but as a rule of thumb, paraxylene prices at around a 25
percent premium to ethanol (after taking into account the lower
yields of isobutanol, per ton of feedstock). PET sells for roughly
a 125 percent premium.”

Having trouble remembering all this?

Here’s a way to keep the supply chain in
mind:

After buying some vinegar at the PX, Meg
went to the PTA with her pet.

The bottom line

For Gevo, probably the good news couldn’t
come too soon. Having gone through dilutive financing events to
shore up the balance sheet, mired in an IP battle with Butamax,
and having struggled with infections at Luverne that have kept the
plant from a 100% shift-over to isobutanol production at or near
nameplate capacity— well, the company can use good news, and this
market is potentially huge for the comoaby in terms of volume and
margins.

For Coca-Cola and Toray, it’s a sign that
the strategic entry into renewable PX is showing signs of heading
for commercial scale. Although 98% of global PX demand is for
plastic bottling — it’s quite possible that Toray and others could
open up other markets using bioPX as an ingredient.

But the advance towards 100% renewable
Plant Bottle packaging is news of major import — and a sign that
Gevo and some combination of partners may well proceed to build a
commercial plant, if the product continues to perform as expected
and the economics are in line.

Where might this go? Beyond Coca-Cola
plastic, there’s already work going on a Sea World, Ford and Heinz
to adopt the new technology — Coca-Cola has said on several
occasions that it intends to foster broad demand for renewable
plastics as part of its overall sustainability mission (and, not
coincidentally, to ensure robust and affordable supply of the
materials).

Some of that will remain dependent on
corn dextrose pricing — since that’s Gevo’s fundamental feedstock.
For now, prices have been good, if not historically great. Much
will depend for the prices for the reainder of this year — on
crucial corn reports due from USDA in July and August on crop
conditions.

May 12, 2014

Spring Blossoms: Amyris First Quarter Earnings

Jim Lane

Lily flowered tulip 'Maytime'
photo by Tom Konrad

In California, Amyris (AMRS)
announced net income of $16.4M on revenues of $6.2M for Q1 2014,
after reporting a $32.6M loss in Q1 2013 on revenues of $9.0M. The
change in net income was primary due to a non-cash benefit relating
to outstanding convertible notes, a result of a decrease in the
Company’s stock price at 3/31/14 compared to the stock price at
12/31/13.

In a release accompanying the results, the company highlighted
that it:

Achieved combined inflows from product sales and
collaborations during the first quarter of $17.9 million on a
non-GAAP basis. On a GAAP basis, total revenues of $6.0 million.

Validated the performance of renewable jet fuel with a third
demonstration flight — by Etihad Airways on a Boeing 777 — and
remain on track for ASTM validation in the coming weeks.

Expanded its product development pipeline for the commercial
introduction of a new cosmetic emollient and a solvent product.

Resumption of production at the Brotas biorefinery following
planned maintenance and facility upgrades to restart in
conjunction with the sugarcane harvest period in Brazil.

First month of farnesene production achieved better
performance from prior year’s quality manufacturing runs. Now,
farnesene yield is reported at around 80% of theoretical
maximum.

Received Roundtable on Sustainable Biomaterials (RSB)
certification, the first of its kind in Brazil.

“During the first quarter, we delivered strong collaboration
inflows, continued our focused commercialization activities, and
ended the quarter with a stronger cash balance. We achieved a cash
gross margin of 73% on sales and collaboration inflows of nearly
$18 million,” said John Melo, Amyris President & CEO.

“Since quarter end, we successfully resumed farnesene production
at the Brotas biorefinery with first month’s performance superior
to our best fermentation runs in 2013 and remain on track for our
objective of becoming cash flow positive during the second half of
this year and profitable in 2015,” Melo concluded.

Resuming forward guidance

In a highlight for investors, Amyris reiterated its prior
guidance for 2014, which was as follows:

Inflows. We expect to achieve total cash inflows, which
includes revenues from renewable product sales and inflows from
collaborations, in the range of $100 to $115 million for 2014.
Specifically, we expect (a) to double sales of renewable
products over 2013 and achieve positive cash margin from
products in the range of $10 to $15 million in 2014 and (b)
maintain collaboration inflows in the range of $60 to $70
million.

Expenses. We expect cash operating expenses for R&D and
SG&A in the range of $80 to $85 million and capital
expenditures less than $10 million in 2014.

Earnings. We expect to achieve positive cash flow from
operations during 2014, with positive non-GAAP EBITDA during the
second half of 2014, and to become profitable in 2015.

Payback. We expect cash payback for our Brotas biorefinery in
the next two years (following 2013 start-up year), based on
plant cash contributions of $10 to $15 million in 2014 and $40
to $50 million in 2015.

The product set

Here’s what Amyris is producing:

arteminisic acid.

farnesene — including farnesene-based elastomers, in
collaboration with Kururay.

patchouli fragrance.

Three more molecules are in development, and there are
reported to be 20 in the pipleline, with primary funding coming
from R&D partners.

The company is announcing two new products: hemi-squalane
(with a 5-7x market size vs. squalane, but lower average selling
price), and a new solvent for the d-limonene market, which has a
17 million liter market size. The company is also expecting to
sell biojet fuel and liquid farnesene runner this year.

Commentary from analysts

Rob Stone and James Medvedeff, Cowen and Co

“On the operational front, Amyris is introducing two new
molecules, both with first revenue expected by year-end. The first
is a new solvent molecule, which will fall under the performance
materials banner that is a major contributor to long-term product
revenue mentioned earlier. The second new molecule is an emollient
that targets the consumer care market, which is expected to have a
price point in the $8-12/kg range. Finally, as it relates to
biojet sales, discussions are underway with four potential buyers
(including one active contract negotiation), and sales are
expected by the end of this year. Worth noting, however, is that
Amyris is not aiming to sell “commodity” jet fuel, but rather
expects to be able to charge a meaningful “green premium,” with
the explicit goal of securing better gross margins. Operational
and commercialization progress is encouraging. Full year guidance
was reiterated, but it appears heavily back-end loaded and
visibility remains low. Maintain Market Perform (2) and cut PT to
$3.00 from $3.50.”

Mike Ritzenthaler, Piper Jaffray

We maintain our Neutral rating on shares of AMRS. Sales (both
product sales and collaboration revenue) were about half of our
estimate and management stated on the call that 2Q would fall
short of consensus. 2014 targets (for cash inflows, expenses, and
positive EBITDA) were reiterated. Approximately half of product
sales and collaboration funding included in the targets are firmly
contracted, which exposes the story to disappointments should the
year not play out as management has forecasted. Nonetheless, we
are encouraged by the success on the technology and liquidity
fronts, but at the same time we hesitate to fully endorse the ramp
at this point given substantial gaps that have materialized in the
past.

Pavel Molchanov, Raymond James & Company

After a period of retooling while in the “overpromise and
underdeliver” penalty box, 2013 was Amyris’ first year with
operations truly in commercial mode, and the outlook for 2014 (and
beyond) is encouraging. There is visible commercialization
progress, but the top line’s reliance (for now) on partner-based
R&D revenue makes quarterly results very choppy. In addition
to updates on the production ramp-up at the Brotas plant, the
market wants to see additional clarity on the pace at which Total
will be scaling up its fuels joint venture with Amyris. We
maintain our Market Perform rating.

The Bottom Line

We’re seeing the product line-up unfold – the multiple molecules
are starting to become an impressive set where the company is
realizing its potential. An improvement in the larger-volume,
low-margin markets will help move the company towards more
substantial than its tasty but ultimately limited prospects in
markets such as d-limonene. Bioject will be key.

May 05, 2014

Why Traffic Lights Are Turning Green For BioAmber

Jim LaneAs many technologies pivot or delay, one train keeps chugging on
its route to biosuccinic acid, and markets like BDO, resins and
polyols.What is it about the business model that keeps on working?
What can every integrated biorefinery learn from its approach?

In Minneapolis, BioAmber (BIOA)
just announced a contract to supply a minimum of 80% of PTTMCC
Biochem’s total bio-succinic acid needs until the end of 2017.

PTTMCC Biochem is a joint venture established by Mitsubishi
Chemical and PTT, Thailand’s largest oil and gas company, to
produce and sell polybutylene succinate (PBS), a biodegradable
plastic made from succinic acid and 1,4 butanediol (BDO). The JV
partners are building a PBS plant in Map Ta Phut, Rayong, Thailand
that will have an annual production capacity of 20,000 tons, and
is expected to be operational in the first half of 2015.

Now, let’s put this in context. According to NNFCC last year, the
global market for succinic acid is between 30,000 and 50,000
tonnes per year. If this were mobile phones, it’d be like coming
out of the box with a billion hand-set order. A single offtake
deal, with a take-or-pay component, for something like one-fifth
of global capacity? Huge.

The PBS plant in Thailand will consume approximately 14,000 tons
of succinic acid per year at full capacity — under the new
agreement, BioAmber could supply a minimum of 11,200 tons of
bioisuccinic acid if that PBS plant operates at full capacity.
BioAmber plans to supply PTTMCC from its 30,000 ton per year plant
under construction in Sarnia, Canada.

Putting BioAmber into a larger context

What is exactly so special about a company making roughly 65
million pounds of a little-known renewable chemical, with a
historically tiny global market?

After all, that is roughly equivalent, by tonnage, to a 10
million gallon first-gen biofuels plant — the kind that generally
closes down these days because of a lack of economies of scale.

There are two reasons that we are looking carefully at BioAmber.

First, as former DOE Biomass Program Manager Paul Bryan opined at
ABLC this year: “Focus on the right products first.” Bryan keyed
in on biosuccinic in his ABLC presentation, highlighting the
opportunities and advantages relating to the utilizing the oxygen
in biomass.

Second, BioAmber is avowedly pursuing a strategy based in careful
aggregation of strategic partners that bring investment and
offtake as well as financing relationships, while building further
applications for their molecules in work with R&D partners
that could be expected to translate into commercial partners down
the line. Which is to say, starting with an economically and
environmentally advantaged molecule and then working in
partnership with downstream customers to establish markets for
that molecule.

It’s very different than the conventional biobased fuels
strategy, which has been to set mandates to create market
certainty, and use that to create a favorable financing
environment, and encourage engagement with incumbents.

BioAmber’s first commercial plant in Sarnia: construction

Moving back to BioAmber, let’s look at the construction timeline
— which has shifted back 4-6 weeks. The company’s first commercial
has slipped into early 2015 unless the company can make up some
time, which it indicates it might.

BioAmber CEO Jean-François Huc reports: “We’ve completed over 60%
of the detailed engineering and are now focused on completing the
detailed piping and electrical instrumentation work…For most for
equipment purchases and work packages…we’re seeing bids there are
coming in on or slightly below budget…giving us an increasing
confidence that we can bring the plant construction in on budget.”

“To date we’ve lost approximately eight work days due to extreme
cold and snow. We’ve also identified the potential for delays in a
few key equipment deliveries. The current trend suggests that if
we do not recover the lost days due to weather moving forward and
we’re not able to mitigate the risks around the equipment delivery
dates, the project completion could be delayed by up to four to
six weeks.”

Commissioning

The commissioning period is estimated at five months — meaning
that the plant could be operating in steady-state as soon as the
end of the first half of 2015 — and BioAmber’s sales projections
for 2015 are in line with that.

Huc comments: “When you mechanically complete and you commission
and startup your plant, realistically you anticipate a three to
five month period, three months being aggressive and five months
being more conservative…Our expectation is that the plant would be
running in a continuous stable mode after five months and…we hope
to sell about 45% of the nameplate capacity in the first year.

BioAmber’s first commercial: customers

The company, meanwhile, has been hard at work on bringing on
customers. The combination of Vinmar and PTT contracts will tie up
nearly two-thirds of the plant’s nameplate capacity in 2015, and
the biosuccinic requirements of the Vinmar deal will more than use
the full capacity of the Sarnia plant (though Sarnia can be
expanded to as much as 50,000 metric tons).

Huc added: “We brought on 18 new customers in 2013 that will help
to base load Sarnia and we worked with a number of companies to
test our bio-succinic acid in new and emerging applications that
offer the prospect of significant growth.

New applications and markets

The key for BioAmber to reach beyond the limited direct market
for succinic acid is through the development of new markets —
using low-cost biosuccinic.

Huc comments: “Over the past year we worked with a number of
innovative companies that validated our Bio-SA in several new
applications.

“For example, in artificial leather they demonstrated that the
polyester polyol made with Bio-SA offers better aesthetics
including softer touch than the polyols made with adipic acid.
This market reportedly consumes 150,000 tonnes of adipic acid
annually. Another example is in foams made with Bio-SA and
recycled PET. The Bio-SA provided performance benefits to the
polyols that were made from recycled PET, including reduced
viscosity, increased density and tensile strength, reduced
brittleness and improved stability in addition to increased
renewable content. These foams have been developed for a number of
applications including insulation panels and the near-term market
is estimated at 15,000 to 20,000 tonnes per year but with
significant growth potential.

“Several coatings companies have also demonstrated that resins
and polyols made with the Bio-SA offer advantages over adipates in
paints and coatings. These advantages include better gloss
retention and higher renewable content. We now believe that the
total addressable market for Bio-SA in coatings is approximately
600,000 tonnes per year.

“Our goal is to sign supplier agreements with market innovators
in these emerging market segments and to announce product launches
incorporating Bio-SA over the coming year.”

The future BDO plant

Let’s look at BDO in some detail.

As BioAmber explained at the time of its IPO: “Succinic acid can
be used to manufacture a wide variety of products used every day,
including plastics, food additives and personal care products, and
can also be used as a building block for a number of derivative
chemicals. Today, petroleum-derived succinic acid is not used in
many potential applications because of its relatively high
production costs and selling price. We believe that our low-cost
production capability and our development of next-generation
bio-succinic derived products including 1,4 BDO, which is used to
produce polyesters, plastics, spandex and other products, will
provide us with access to a more than $10 billion market
opportunity.”

The Vinmar relationship. The BDO opportunity
signaled in the IPO became more vivid early this year when Vinmar
has committed to purchase, in a 15-year master off-take agreement,
100% of the BDO produced in a 100,000 ton per year capacity plant
that BioAmber plans to build in North America and commission in
2017, Under the terms agreement, Vinmar also plans to invest in
the BDO plant, taking a minority equity stake of at least 10%, and
has a right of first refusal to invest in and secure 100% of the
off-take from a second BDO plant.

More on Vinmar. Vinmar has been selling close to
50,000 tonnes of BDO per year for the past several years. Vinmar
also has project development and financing expertise having helped
several partners secure project financing by leveraging Vinmar’s
banking relationships and the take-or-pay agreements that they
sign.

Pricing: Huc reports: “At recent BDO prices and
to give you a sense of those the global average price over the
past three years was approximately $2,800 per metric tonne
according Tecnon OrbiChem data, the annual sales from this plant
would be approximately 280 million representing over 4 billion in
revenues over the term of the contract.”

Execution risk. Producing BDO from succinic at
scale, at commercially feasible rates — well, there’s work left to
do. BioAmber reports that “we’re continuing to work with our
exclusive partner Evonik to scale up and commercialize the
catalysts we have licensed from DuPont (DD).”

The timeline: Huc comments, “We’ve begun the
site selection process in North America, building on the site
selection process we had run a few years ago for Sarnia a lot, as
you can imagine the front-end of this BDO plant it’s just a big
succinic acid plant, so most of our requirements in terms of site
selection are identical to those we used in finally choosing
Sarnia…in parallel we’ll be working to see what kind of government
support we can secure for that project so, that has to dovetail
with a toll manufacturing facility coming online in the U.S. and a
successful startup of the Sarnia plant and ideally all those
things come together in the summer of 2015 so that we’re in a
position to move to a financial close with a group of lenders and
equity partners.

Cash burn

The company reports: “Our goal is to keep our cash burn under 20
million in 2014 while spending more money on BDO development and
engineering for the remainder of this year as we prepare to bring
the BDO toll manufacturing facility online next year.” The company
has $83.7 million cash in hand, after reporting a net loss for
2013 of $33M, after a $39M loss in 2012.

PTT and Myriant

We’ll be watching that 2017 date carefully, for another reason.
It may well suggest a completion date for a biosuccinic acid plant
that PTT has been investigating with Myriant. PTT has, since
January 2011, been a high-visibility strategic investor in
Myriant, putting $60M in the company a few years back — and
avowedly the companies have been signaling interest in PBS.

Reaction from BioAmber on the PTT deal

“This first succinic acid take-or-pay agreement is an important
milestone for BioAmber,” said Babette Pettersen, BioAmber’s Chief
Commercial Officer. “This contract guarantees significant sales
volume for our Sarnia plant during its first three years of
operation. PTTMCC is a major new buyer of bio-succinic acid and
locking up this substantial volume commitment will strengthen our
market leadership,” she added.

In California, Solazyme (SZYM)
announced its entry into the oil and gas drilling fluids additive
market. Building upon its proprietary platform of high
performance, sustainable Tailored oils, Solazyme has introduced
Encapso, the world’s first encapsulated biodegradable lubricant
for drilling fluids designed to deliver high-grade lubricant
precisely at the point of friction where and when needed most.

At the same time, the company announced its intent to offer $100M
in aggregate principal notes due in 2019 and 5M shares of common
stock. SZYM will also grant the underwriters a 30-day option to
purchase up to $15M in notes and 750k shares of common stock.

“We expect the deal to be completed by the end of the week,” said
RW Baird analysts Ben Kallo and Tyler Frank. “Although initially
dilutive, it should provide sufficient capital to ramp production
at its facilities and fund further R&D.” The analysts put a
$18 price target in SZYM shares, which closed on March 25 at
$13.09.

The drilling fluids markets

The global market for drilling fluids was valued at $7.2 billion
in 2011 and is expected to reach $12.31 billion by 2018, according
to a
report released last summer by Transparency Market
Research.

The rise in unconventionals and the growth in deep-sea
exploration have driven up revenues for drilling fluids in recent
months. One factor that has limited the use of conventional
oilbased fluids (as opposed to water-based fluids) have been
environmental and sustainability concerns associated with
conventional oils.

According to Solazyme, Encapso’s efficacy has been demonstrated
both in the lab and in the field in over a dozen commercial wells
in a number of basins including the Williston Basin,
Denver-Julesburg, and the Permian Basin. Encapso increases
drilling speed and control, and protects valuable equipment.

The majority of work so far has been done in horizontal wells,
helping demonstrate Encapso’s strong performance capabilities when
it comes to “building the curve”—or the point where an
unconventional well transitions from vertical to horizontal. This
is often when drilling engineers find the most difficulty managing
drilling friction. Improving the speed and efficiency of drilling
translates directly to cost savings for well operators.

“The demand for energy continues to grow but new sources of
fossil fuels are more difficult than ever to recover. As long as
the oil and gas industry continues to extract fossil fuels, we at
Solazyme view it as an imperative that it is done in a more
sustainable way to protect the environment for generations to
come,” said Solazyme CEO Jonathan Wolfson. “The drilling industry
needs new high-performance and sustainable technologies to meet
rising energy demand and increased drilling. Encapso’s unique
targeted lubricant delivery system helps reduce the costs for the
oil and gas exploration and production industry and provides
improved drilling performance.”

Reaction from the customers

“After adding Encapso to the system we saw a rate of increase in
our rate of penetration from two feet per hour to 40 feet per
hour. Encapso is a game changer because you’re reducing your
torque, reducing your drag, and reducing your coefficients of
friction all at the same time,” said Philip Johnson, a senior
drilling engineer who worked with Encapso on behalf of a major
exploration and production company. “No other product on the
market does that.”

”Our observation of the product is that it has consistently added
value,” said David Cunningham, Regional Manager at Anchor Drilling
Fluids, USA. “The biggest impact has come when we’ve seen
increases in rate of penetration and reductions in torque.”

“When I learned that this lubricant was encapsulated and
therefore would deliver a drilling lubricant in a more targeted
way, I saw the tremendous potential benefits,” said Tony Rea,
President of Arc Fluids. “I introduced Encapso to a few customers
and worked with them on several wells that they were drilling. In
all cases, we witnessed marked improvements in directional
control.”

The Analysts on Encapso

“Entering into the oil and gas drilling fluids additive market
provides SZYM another end market for its products,” write Ben
Kallo and Tyler Frank at RW Baird. “This will be important as the
company ramps production at its Clinton and Moema facilities. We
believe SZYM should be able to secure offtake agreements for the
Encapso product line after successfully testing the product in the
Williston Basin, Denver-Julesburg, and the Permian Basin and
receiving positive feedback from Anchor Drilling Fluids and Arc
Fluids.”

The Bottom Line

Another market for Solazyme — and a large one — and one in which
high-performance and high-sustainability are known factors for
driving revenues. If the company gets real traction in this field,
its planned capacity will have to be revised northwards. Towards
which its pending cap raise will materially contribute.

March 18, 2014

Gevo: Are We There Yet?

by Debra Fiakas CFA

The renewable chemicals and biofuel company Gevo, Inc. (GEVO:
Nasdaq) is scheduled to report fourth quarter 2013 financial results
on March 25th. Analysts have a couple of weeks to prepare
questions for management during the earnings conference call.
Top on the list has to be got to be about Gevo’s recent agreement to
license its novel isobutanol technology to Porta Hnos of
Argentina. Porta Hnos is a well established ethanol producer
so if the license is consummated, it is expected that this partner
has the ability to execute on plans to produce isobutanol for the
South America market.

Isobutanol is popular as a solvent, but it has a plethora of
applications across several industries. It is used in paint
solvents, varnish removers and automobile polish. Importantly
it is a building block for plastic bottles and synthetic
textiles. It even has a use in food production as a flavoring
agent. That all adds up to the kind ‘very large market
opportunity” that generates strong sales and profits.

Gevo has already begun production for other markets and the company
has several off-take agreements and supply agreements in place,
including Sasol Chemical Industries and Land O’Lakes Purina
Feed. The company has also been diligent in putting together
development agreements with high profile customers like Coca Cola
and the U.S. Army to build the market for its isobutanol made from
the fermentation of sorghum, barley wheat or corn.

In December 2013, Gevo announced successful test flights by the U.S.
Army with a Black Hawk helicopter fueled up with a 50/50 blend of
Gevo’s alcohol-to-jet fuel and conventional jet fuel. The test
was part of the Department of Defense program to get all of its
craft certified to operate on alternative fuels. Gevo already
had agreed to supply up to 16,000 gallons to the U.S. Army for test
purposes, but has yet to get a long-term supply contract. Thus
another great question for Gevo management is what visibility they
have into the DOD’s plans for USING alternative jet fuel.

In the most recently reported twelve months Gevo claimed $8.5
million in total sales, resulting in a net loss of $62.6
million. This is well below revenue levels in previous
periods. Indeed Gevo has had a fairly erratic track record as
its isobutanol sales are still at an early stage and have not yet
replaced the sale of ethanol that had previously been produced in
the company’s Luverne, Minnesota plant. The cash burn was
nearly as discouraging. Gevo used $52.5 million in cash in the
most recently reported twelve months.

The logic of converting an ethanol plant to isobutanol production is
understood. Unfortunately, while we appreciate the route Gevo
has mapped out, the journey seems to be taking some time. What
we really need to understand is “ARE WE THERE YET?” In
December 2013, the company raised about $25 million through the sale
of common stock and warrants. Some of the money will be used
to ramp up production at the Luverne plant.

A review of recent trading patterns in GEVO has not been
encouraging. Many of the technical formations in recent months point
to continued bearish sentiment. One source of concern for
shareholders has been the suppressive effects of the recent common
stock issuance on near-term trading. Shareholders need to know
if the pain of dilution is going to be worth it.
Debra Fiakas is the Managing Director of Crystal Equity
Research, an alternative
research resource on small capitalization companies in selected
industries.

Neither the author of the Small Cap
Strategist web log,
Crystal Equity Research nor its affiliates have a beneficial
interest in the companies mentioned herein.

February 02, 2014

Solazyme: Now, Express Yourself in the oils you choose.

Jim Lane

In an on-time arrival, Solazyme starts up at 500,000 liter scale
in Clinton, Iowa.

In California, Solazyme (SZYM)
announced that commercial operations have commenced at both Archer
Daniels Midland Company’s (ADM)
Clinton, Iowa facility, and the downstream companion facility
operated by American Natural Products in Galva, Iowa.

Highlighting the flexibility of Solazyme’s technology platform,
Solazyme, ADM and ANP have successfully manufactured three
distinct and unique tailored oil products at the facilities, and
products are currently being sold and distributed in both the U.S.
and Brazil.

Volumes shipped to Brazil are being utilized for market
development activity in advance of the opening of the Solazyme
Bunge (BG)
Renewable Oils Moema facility. As stated previously, production at
the ADM and ANP facilities is expected to ramp to a nameplate
capacity of 20,000 MT/yr within 12-18 months, with targeted
potential expansion to 100,000 MT/yr in subsequent years.

The company noted, in a release, that “truckloads of product are
now shipping from the Iowa operations for use in applications
including lubricants, metalworking and home and personal care.
These shipments are being made pursuant to multiple supply
agreements as well as spot purchases, and include reorders.”

Analyst reaction: The Bull perspective

Rob Stone and James Medvedeff at Cowen & Company write: “SZYM
hit a major milestone with the first commercial volume deliveries
from the Clinton, IA ADM plant and ANP downstream facility in
Galva. Three different products are being sold via multiple supply
agreements, spot purchases and reorders. Startup problems have
hampered many peers, so this news should be a significant trigger.
The Moema, Brazil plant is also expected to start this quarter.

“Applications for the three tailored oil products already
shipping include lubricants, metalworking, and home and personal
care. Moema Startup and More Customer/Product News Could Also Be
Triggers

“[At Moema, Brazil] Startup was pushed out from the original
Q4:13 target to make enhancements that will enable faster
switching between food and industrial oils, more automation, and
environmental controls to permit earlier work with new strains.
Getting the second large-scale facility on-line this quarter
should be another big trigger.”

Raymond James analyst Pavel Molchanov adds: “Positive cash flow
is realistic in 2015. While the ramp-up of production will
certainly not be linear – as is always the case in industrial
biotech – we anticipate utilization rising to 50% in 4Q14. This
translates into a four-fold increase in total revenue from 3Q13 to
year-end 2014, with product sales jumping by an even larger amount
(7x). To be clear, Solazyme can get to positive cash flow at the
corporate level (in 2015) even before full utilization at either
Clinton or Moema.”

Analyst reaction: The Bear perspective

Piper Jaffray’s Mike Ritzenthaler noted: “We maintain our
Underweight rating and $4 price target on shares of SZYM following
last night’s press release that both Clinton and Galva are
producing commercial oil shipments. The market is clearly much
more enthusiastic than we are about the news. Investors, it would
seem, believe that operations have been totally de-risked now that
commercial shipments have started. We do not share that opinion,
however, and our continued caution is rooted in history and
practical experience, our lack of comfort with the company’s
stated production economics, and the dilutive nature of Clinton
production to shareholders based on the tolling arrangement with
ADM and associated stock payments. The fact that SZYM is a story
stock is not lost on us, but even with lower estimates, perfection
is priced in.”

The ADM agreement

In November 2012, Solazyme and ADM signed a series of strategic
collaboration, manufacturing and market development agreements for
production at the Clinton, Iowa plant. At the time, the companies
said that Solazyme would initially target the production of 20,000
metric tons of oil in 2014, with an aim to increase production to
100,000 metric tons in subsequent years. Commercial production was
expected to begin in early 2014, the companies said at the time —
a prediction which proved right on the mark.

ADM’s wet mill, which is adjacent to the fermentation plant, is
initially providing dextrose for the fermentation; and steam and
power is being delivered from ADM’s cogeneration facility that is
partially fired with renewable biomass.

Scale of operations

Back in December 2012, Solazyme completed multiple initial
fermentations at the Clinton plant, conducted in approximately
500,000-liter vessels, or about four times the scale of the
vessels in Solazyme’s Peoria facility. The scale achieved at ADM’s
Clinton facility is comparable to the fermentation equipment
currently under construction at the Solazyme Bunge Renewable Oils
facility in Brazil.

The Bunge facility, initially expected to commence operations in
Q4 2013, slid its scheduled start-up to Q1 2014, prompting some
volatility in Solazyme’s stock late last year.

Nike vs Ford

If you’re under 30, or follow shoes — you are probably familiar
with NIKEiD – allowing you to “personalize your performance,
fine-tune your fit, and represent your style”. You get “your
shoes, your style, made exactly the way you want to match your
performance and style demands. You can “fine-tune your traction”
as well as customize the look and feel.

It’s part of what drives Nike — footwear tailored to your needs,
whether you choose from one of their hundreds of off-the-rak
styles or go all-in on a NIKEiD tailored shoe.

At the other end of the spectrum was Henry Ford’s Model T, of
which is was said “you can have it in any color you like, as long
as that color is black.”

To date, the business of oils has been more on the Model T type —
what’s in the barrel or plant is what’s in the barrel or plant.
Generations of chemists and engineers have learned to work with
the properties of given animal, plant or fossil oils. But here
comes Solazyme with a “tailored oil” approach. Applications
abound.

Reaction from Solazyme

“This is a critical milestone for Solazyme’s large scale
commercial manufacturing capabilities. The Solazyme, ADM and ANP
teams have done an excellent job bringing up commercial operations
at the Iowa facilities with Solazyme’s TailoredTM oil production
technology. We have already successfully produced three TailoredTM
oil products at scale and have begun selling these products into
the North American marketplace,” said Jonathan Wolfson, Solazyme’s
CEO.

“Consistent with our stated plans, we are focused initially on
ensuring consistent and reliable operations as we build customer
trust. While we acknowledge that it is still early days, we look
forward to the opportunity to expand our production volume and the
slate of oil products available.”

The Bottom Line

As Cowen’s analysts note, “Startup problems have hampered many
peers, so this news should be a significant trigger.” All eyes
will now be on Moema. If that goes forward as well or better:
well, as we opined a few years back in the case of Solayzyme: They
Might Be Giants.

August 10, 2013

Solazyme Shares Soar On Sasol Deal

Jim Lane

Bioenergy’s #1 company surges on the exchanges after big Sasol,
AkzoNobel partnership announcements.

In California, Solazyme (SZYM)
announced a Q2 loss of $25.8M, compared to a Q2 2012 loss of $19.2M,
on revenues of $11.2M, down from $13.2M for Q2 2012, as government
funded revenues declined as expected. Excluding the government
sector, sales jumped 28% year on year despite the lack of the big
capacity that Moema and Clinton will represent when completed.
Product gross margins were a very healthy 70%, in line with
guidance.

Solazyme shares were up 12.95 percent today at market close.

“We are making great progress as we approach commencement of
manufacturing at our commercial production facilities later this
year,” said Jonathan Wolfson, CEO of Solazyme. “Capacity build-out
at our Brazilian JV facility remains on target, and we are actually
accelerating plans at the Clinton, Iowa facility, which should allow
us to begin producing product for market and application development
during the second half of this year.

“Peoria is also being
retrofitted to produce algal flour and protein products with
availability of commercial development quantities also expected in
the second half of this year. Tailored oil technology breakthroughs
are continuing to open additional attractive end market
opportunities, as evidenced by the announcement of the new high
erucic tailored oil under development with Mitsui and the related
commercial supply terms with Sasol (SSL).”

The White Hot News

Solazyme and Sasol Olefins & Surfactants have finalized
commercial terms for the supply of an algal oil rich in erucic acid
under development at Solazyme for production of downstream
derivatives such as behenyl alcohol. Sasol O&S produces and
sells C22 derivatives such as behenyl alcohol to serve a number of
applications in markets that include the paper, water treatment,
personal care, lubricants, oil and gas, and paints, inks, coatings
and adhesives industries.

High erucic oil is the second oil in the suite of tailored oils
being developed under the JDA with Mitsui, with myristic oil being
the first. Erucic acid is commonly found in some rapeseed and
mustard seed oils and is currently used mainly as an emulsifier in
multiple industries including cosmetics and as a plastics additive.

In addition to the agreement on commercial supply terms, the
companies also executed a letter of intent to investigate expanding
to a broad collaboration, including joint manufacturing and
marketing of multiple tailored oils.

Why Big? Solazyme, which has been highly focused on building
capacity, has faced criticism for not developing enough binding
offtake agreements. Here’s one, with a brand-name partner, though
with volumes not disclosed it is not possible to relate this back to
the supply vs demand questions.

Red Hot News

Speaking of capacity building, Moema remains on track (now 80%
complete), and the facility in Clinton is accelerating and is
expected to begin commissioning in late 2013 instead of early 2014.

Orange-hot news

Solazyme and AkzoNobel Enter into Joint Development Agreement.
The partnership targets the development of advanced tailored oils
and commercial sales for the specialty surfactants and paints and
coatings markets. The agreement is centered on a shared commitment
to the production of high-performance triglyceride-based products
that improve upon the performance of plant oils and animal fats.

More orange-hot news: The Algenist sales jump. Algenist
sales rose 21% over Q2 2012 — a big jump, and a nice confirmation
that that remains a growth channel for now.

Warm but not hot news.

Solazyme is establishing new large-scale manufacturing capability
for high protein and high lipid products that were previously part
of the Solazyme Roquette Nutritionals joint venture. Production of
both products is targeted to begin at Solazyme’s Peoria facility
this year.
It could be hot.

Earlier this week, Solazyme and Twinlab announced the launch of
Twinlab’s CleanSeries Veggie Protein Powder featuring Solazyme’s
algal protein. In their annoucne, the partners noted that “whole
algal protein is a vegan whole-food source, microalgae-derived,
non-allergenic”, and contains “at least 50 percent protein by weight
and 15-20 percent dietary fiber.” What we don’t know at this stage
is the demand for the powder.

Analyst commentary

Rob Stone, Cowen & Company: ”Q2 was essentially in line
and 2013 guidance maintained. Capacity build is on or ahead of
schedule, including initial quantities for nutritionals. A new
high-Erucic oil expands the Mitsui relationship and adds a supply
deal with Sasol. The volume ramp should drive CF breakeven by Y.E.
2014.”Pavel Molchanov, Raymond James: “The versatility of
Solazyme’s algae-produced oils opens the door to wide-ranging
opportunities across the fuel, chemical, personal care, and
nutrition markets. While fully recognizing the inherent execution
risks in early-stage industrial biotech, we are bullish on the
roadmap to commercialization, with two major proof points within
months. The balance sheet is also in great shape, with by far the
largest cash balance in the peer group, virtually eliminating equity
dilution risk over the next 12 months. We reiterate our Outperform
rating.”

May 13, 2013

Two Thumbs Up for Solazyme: AkzoNobel deal, new technology for structured oils

Jim Lane

The sector’s perennial
hottest company strikes again — with “potentially disruptive” new
technology to change the positioning and performance of
triglyceride oils.

In California, Solazyme (SZYM)
and AkzoNobel announced an agreement targeting the development of
advanced tailored triglyceride oils and commercial sales for
near-term product supply. The agreement focuses on supply for the
chemical giant’s Surface Chemistry and Decorative Paints businesses.

Commercial supply of multi-thousand ton quantities of highly
sustainable algal oil is expected to originate from the Solazyme
Bunge Renewable Oils Joint Venture oil manufacturing plant in
Brazil. Sales of product are anticipated to commence in 2014, with
pricing to be competitive and based upon Solazyme’s cost of
manufacturing.

In addition, Solazyme announced a new technology for structured oils
— which analysts termed “potentially disruptive” and opens up a
number of possibilities in the $2500+ per ton triglyceride oil price
range.

What exactly is a structuring capacity in triglyceride oils?

As you might expect from the “tri” in triglyceride oil — essentially
it is a glycerol hand with three fatty acid fingers sticking out of
it — though they are generally described as fatty acid chains.

Now, as you can imagine if you were re-engineering a hand — you’d
want to work with three properties that might be interesting. One,
finger length. Two, the finger’s musculature. Three, the position of
the fingers along the hand.

Roughly speaking, these correspond to fatty acid chain length,
saturation (the number of double bonds), and positioning. Each of
those factors contribute to the performance of triglycerides — just
as they do with fingers.

The latest Solazyme news is that — having previously demonstrated
technology to manipulate – chain length and saturation — it now has
the third, positioning.

Imagine, for example, reengineering your hand to give yourself thumb
and forefinger capabilities down towards the pinky end of the hand —
that’s more performance.

Moreover, it’s optionality — and in the world of oils for everything
from nutrition to paints, options give you performance benefits. In
this case, by reengineering essentially the same basic algae
fermentation process — rather than laying a layer of expensive
process chemistry steps to get from one target molecule to another.

Since with petroleum oil (or traditional plant oils) you are working
with a defined feedstock that you cannot change – the more process
steps it takes to get from feedstock to a desired target — or the
rarity of the target molecule in the mix of natural oils — well,
that’s a sweet spot for synthetic biology companies.

It’s the difference, in layman terms, of owning a piano and knowing
how to play it — instead of owning one of those self-playing
pianolas that operate the piano via pre-programmed perforated paper
or metallic rolls.

What does that mean in terms of everyday applications?

In nutritionals, there is the potential to eliminate trans fats in
food but retain texture. Where oil profiles have benefits of animal
fat without “bad” cholesterol

In industrials and personal care, it offers the potential for
product formulations with sharp
melting at desired temperatures, and creamy textures with
consistent, long lasting results.

Financial results for Q1

At the same time, Solazyme announced revenues of $6.7 million for Q1
2013 and a GAAP net loss of $26.5 million, compared to a loss of
$16.8 million for Q1 2013.

Building capacity

“We are off to an excellent start in 2013 executing on our three
primary focus areas: completing capacity projects on schedule;
developing our portfolio of tailored oils; and bringing our tailored
oils to market,” said Solazyme CEO Jonathan Wolfson. “In addition to
the newly announced agreement with AkzoNobel, the first quarter
included several important milestones such as our Mitsui
partnership, our technology breakthrough that allows us to develop
new structuring oils, and key financing achievements that support a
clear path to commercialization. We remain on target to be in
commercial production in multiple facilities by early 2014.

Cowen and Company analysts Rob Stone and James Medvedeff commented,
“Q1:13 loss per share was in-line and full-year guidance was
unchanged. A new partnership with AkzoNobel should contribute
R&D funding this year and product sales in 2014. Unique, new
structuring oil capability should open high-value product
opportunities. Capacity expansion is on track. We see 70% upside
relative to the market in a year. Reiterate Outperform.”

According to Nasdaq.com, Solazyme is currently rated a strong buy by
8 of the 10 equity research firms offering coverage of the stock.
One rates the company a “Buy,” and one gives the company a “sell”
rating.

The AkzoNobel agreement

Compared to some of its peers, which have maintained a relatively
splashy posture n the green chemistry space, AkzoNobel — the largest
global paints and coatings company and a leader in specialty
chemicals — has been in a stealthy mode. It makes the agreement with
Solazyme its most high-profile to date.

To date, AkzoNobel’s work has largely been in the substitution of
feedstocks — especially surfactants and cellulose derivatives — with
renewable content in the coatings businesses on the rise.

The Paints business, at AkzoNobel, is big business — and paints
consist of pigments, solvents and binding agents. Last year, the
company tipped that it was investigating the use of algae in
producing binding agents with a lowr carbon footprint.

As Keurentjes indicated to BioBased Society, “Sustainability issues
now constitute our ‘license to operate’. Our customers request
sustainability, and from the demand side the whole chain is becoming
greener.”

Back in 2011, AkzoNobel acquired China’s Boxing Oleochemicals, which
was integrated into AkzoNobel’s Surface Chemistry unit. The
unit manufactures bio-polymer and synthetic additives with uses
ranging from home and personal care to asphalt road paving.
The company also acquired Integrated Botanical Technologies’
patented Zeta Fraction technology, which makes it possible to
harvest and separate constituent parts of a living cell from any
plant or marine source without requiring any solvents.

Reaction from Solazyme and AkzoNobel

“AkzoNobel’s leadership in specialty chemicals and sustainability
makes them a natural partner for us to work with,” said Jean-Marc
Rotsaert, Chief Operating Officer, Solazyme. “Akzo’s significant
product sales and growth strategy in the Americas also overlaps well
with our manufacturing footprint.”

“We think the tailored triglycerides developed by Solazyme can offer
valuable new technology for our Surface Chemistry and Decorative
Paints businesses, and we are excited about our partnership with
such an innovative, promising new business” said Graeme Armstrong,
Corporate Director for Research, Development and Innovation,
AkzoNobel. Added Peter Nieuwenhuizen, Director Future-proof Supply
Chains “We look forward to a multi-faceted alliance with Solazyme,
including supply in the Americas region, and joint research and
development to drive new functionality alongside improved
sustainability.”

Product development efforts are anticipated to begin in the second
half of 2013, and are focused on a number of AkzoNobel’s end market
applications, specifically surfactants and paints and coatings.

A dissident voice

Over at Piper Jaffray, analyst Mike Ritzenthaler remains a Solazyme
bear, terming the AkzoNobel announce “Another ambiguous, non-binding
agreement,” and advocating “a cautious approach to shares into the
commercial ramp – a process fraught with stumbling blocks.”
Ritzenthaler added that “the commercialization phase will likely
bring with it several stumbling blocks, no matter how well prepared
the company may appear. Additionally, production costs of less than
$1000/MT continue to be far too optimistic in our view.”

May 12, 2013

BioAmber Completes IPO

Jim Lane

Raises $80M at $10 per share; becomes first new industrial
biotech company to complete IPO in more than a year.
What went right and how? Is the IPO window re-opening?

In Minnesota, BioAmber announced the pricing of its initial public
offering of 8 million units consisting of one share of common stock
and one warrant to purchase half of one share of common stock at $10
per unit, before underwriting discounts and commissions. All units
are being sold.

BioAmber has granted the underwriters an option for 30 days to
purchase up to an additional 1.2 million units at the initial public
offering price to cover over-allotments.

The units are expected to start trading on the New York Stock
Exchange today under the symbol “BIOA-U”.
BioAmber also intends to list its common stock on the Professional
Segment of the regulated market of NYSE Euronext in Paris under the
symbol “BIOA.”

Credit Suisse, Barclays and Société Générale acted as joint
book-running managers for the offering. Pacific Crest Securities was
co-manager for the offering.

What went right: the structure

First and foremost, there’s the modesty factor.

The IPO is a relatively small one, raising $80M, compared to the
nearly $200M hauled in by the likes of Solazyme and Gevo at the
height of the IPO boomlet in 2011. Codexis had a similar result, in
terms of overall cash raised, when it became the first company in
this wave of next-gen technologies to complete an IPO in 2010. The
overall company begins trading today with an $180 million market
value — well below the billion dollar valuations that Solazyme and
KiOR commanded at the time of their IPOs.

In terms of the structure of the offering — the late
addition of warrant sweeteners could well have made the difference —
providing that upside “kicker” for the investor that balanced more
effectively against the perceived risk of an early-stage company.

In terms of market structure — we see that qualifying
BioAmber as an “emerging growth company” under the terms of 2012′s
JOBS Act ensured that the offering hasd more regulatory latitude –
particularly in permitting more interaction between investors and
BioAmber and its investment banking team between the original S-1
and the actual IPO.

What went right: the company

Revenue-producing. In general terms, BioAmber came later to
the market than some of its peers — although still a
development-stage company that lost $39 million in 2012 and $30M in
2011, the company has been ramping up revenue and recorded $2.2
million in product sales for 2012, with a 24% margin. In all there
were 227 tons of biosuccinic acid sold to 19 different customers —
and BioAmber is the first to achieve biosuccinic sales on this
scale.

Reduced scale-up risk. Though the IPO proceeds will, in part,
be dedicated to the first commercial plant, BioAmber has been
running at its demo plant for three years now in Pomacle, France at
the 350,000 liter scale — far more progress towards scale-up than
some of its peers.

Improvements in the first commercial design to increase margin.
As BioAmber related in the S-1A, “We have incorporated numerous
lessons learned and improvements gained from operating the facility
in France into our engineering design for our planned manufacturing
facility in Sarnia, Ontario. We expect to produce bio-succinic acid
[without subsidy] cost-competitive with succinic acid produced from
oil priced as low as $35 per barrel.”

Lower feedstock risk exposure. As BioAmber detailed in its
last revised S-1A registration statement, “Our process requires less
sugar than most other renewable products because 25% of the carbon
in our bio-succinic acid originates from carbon dioxide as opposed
to sugar. This makes our process less vulnerable to sugar price
increases relative to other bio-based processes.”

Less policy risk. An advantage that the pure-play renewable
chemical companies have over their fuel-only or “fuels and chems”
peers? There was never any expectation of market subsidies or
mandated usage — and the pure-plays have inherently less policy risk
— a risk realm that has proven highly toxic to both public investors
and project finance suppliers.

Biggest risk left?

The market for succinic acid itself is relatively small. The key to
BioAmber (and other developers, like Myriant) is finding a market
for biosuccinic as a “drop-in” replacement for other, incumbent
petroleum-based chemicals, addressing what BioAmber termed “a more
than $30 billion market opportunity.” That claim is yet to be proved
— and the hard yards of commercialization lay ahead for the company
to develop novel markets at scale.

But that, in many ways, is the market position of Solazyme — and we
have seen the public markets more embracing of the risk of new
markets. It has been fear of technology risk, feedstock risk,
finance risk and policy risk that has been more notable in the
drubbing handed out to several IPOs that happened earlier in the
cycle.

Bottom line – is the IPO window re-opening?

Yep, it’s open again, but narrowly.

Lessons learned? Avoid as much technology risk (and the accompanying
delays) as possible. Have a clear path for raising debt — fear of
dilution is a share price-killer too. Manage that input cost
exposure.

Save 31% on BioAmber’s IPO

Will BioAmber complete its IPO?
As the industry waits, fingers crossed, the biosuccinic developer
sweetens the pot with warrants, lower share prices.

In Canada, BioAmber has reduced the proposed price range for its IPO
to $10-$12 per share, down from a $15-$17 range — as it seeks to
keep the initial public offering on track.

Overall, the company now proposes to raise between $80 million and
$110.4 million in the offering, now scheduled for May 13th according
to the latest calendar from NASDAQ.

At the offering’s midpoint — and excluding the sale of up to 1.2
million shares in over-allotments — the company would raise $88
million, or 31% less than its previous SEC filing.

The company’s common stock has been approved for listing on the New
York Stock Exchange, where it would trade under the symbol “BIOA”
and the company also intends to list the stock on the Professional
Segment of NYSE Euronext in Paris.

Credit Suisse, Societe Generale and Barclays are acting as
bookrunners on the deal.

With the revised S-1A filing with the SEC yesterday, which revealed
the lower target and can be
read in its entirety here, the company said that each share of
common stock would be sold in combination with a warrant to purchase
half of one share of common stock at an exercise price of $11.00 per
whole share of common stock.

JOBS Act.

BioAmber Inc. is the first industrial biotech company to attempt an
IPO, defined as an “emerging growth company” under the Jumpstart Our
Business Startups (JOBS) Act of 2012. More than 75 percent of
companies that completed IPOs in the past year elected that
designation — which provides, among other benefits, a five-year
phase-in until the company has to fully comply with Sarbanes-Oxley
provisions.

Complete coverage

We’ll explore the impact of the JOBS Act on IPOs, plus the impact of
the warrants provisions in the revised filing — what it means, and
how those work — in BioInvest Digest, where you can find a special
report on BioAmber.

April 15, 2013

BioAmber Sets Price Range for IPO

Jim Lane

8 million share offering at $15-$17 aims to raise $128
million.

“We are selling 8,000,000 shares of common stock,” begins
BioAmber’s latest SEC
update, written in IPO-legalese.

“The initial public offering price of our common stock is expected
to be between $15.00 and $17.00 per share, which is the equivalent
of €11.48 and €13.01 per share, based on an assumed Bloomberg BFIX
Rate for USDEUR at the pricing of this offering.

If completed, it would be the first successful IPO in the sector
since Ceres (CERE)
and Renewable Energy Group (REGI)
completed IPOs in 2012. In total, seven companies (Codexis (CDXS),
Amyris (AMRS),
Gevo (GEVO),
Solazyme (SZYM),
Ceres, Renewable Energy Group and KiOR (KIOR))
have completed IPOs in this wave. In recent months, Fulcrum
BioEnergy, Genomatica, Enerkem and Mascoma have pulled planned IPOs,
citing market conditions.

“We have applied to list our common stock on the New York Stock
Exchange, where it will trade in U.S. dollars under the symbol
“BIOA.” We have also applied to simultaneously list our common stock
on the Professional Segment of NYSE Euronext in Paris, where it will
trade in Euros under the symbol “BIOA.”

“The underwriters have an option to purchase a maximum of 1,200,000
additional shares to cover over-allotments of shares.”

Latest news from BioAmber

Last November, BioAmber
reported that it will be the supplier of biobased succinic
acid to the Faurecia-Mitsubishi Chemical partnership for the
production of automotive plastics. This is in response to
environmental constraints associated with vehicle weight reduction
and the regulations intended to increase the recyclability of
materials used in the automotive industry (85% in Europe by 2015)
call for increased use of new materials derived from natural
resources, which will ultimately replace petroleum-based plastics.

Last October, the Sustainable
Chemistry Alliance reported that BioAmber is expected to
complete commissioning in 2014 of a new biosuccinic acid plant, now
under development in Sarnia, Ontario. “The $80 million project is
being constructed at the LANXESS Bio-Industrial Park in Sarnia. The
site is located in a large petrochemical hub with existing
infrastructure that facilitates access to utilities and certain raw
materials and finished product shipment, including steam,
electricity, hydrogen, water treatment and carbon dioxide,” the
Sustainable Chemistry Alliance newsletter reported.

Financial activity

Last year, BioAmber raised $30 million in its Series C round of
financing with $20 million invested in November by Naxos Capital,
Sofinnova Partners, Mitsui & Co. Ltd. and the Cliffton Group,
and a second tranche of $10 million on February 6th, 2012 closed
with specialty chemicals company LANXESS. BioAmber and LANXESS are
jointly developing phthalate-free plasticizers and expect to begin
sampling succinic-based plasticizers in 2012.

The IPO filing: The Digest’s 10-Minute Guide

Can BioAmber translate a lead in succinic acid’s smallish market
into leadership in a vast array of high-priced renewable chemicals?
Here’s our 10-minute
version of the BioAmber IPO, with a translation of the risks
into English.

February 04, 2013

Biobased and Biofuel Investments: A System

Jim Lane

A Biofuels and Biobased investment primer: An 18-combination,
8-character system for classifying bio investments
Here’s our investment primer on how to size up the risks and the
rewards and tune them to meet your goals.
And, a system for organizing opportunities.

So, you’re thinking about investing in bio? Here’s the good news –
you’re not alone. Here’s the bad news – you’re not alone.

For one thing, carbon’s making a comeback as the economy recovers
and the weather continues to get wilder, whackier and scarier. As
DOE Deputy Chief of Staff Jeff Navin observed, “Just because the
appetite to tackle it went away, didn’t mean the [climate change]
problem went away”.

As investors are discovering, the whole world changes when the rain
doesn’t fall where it used to fall.

Though there are hundreds of companies, you can parse it all down
into some pretty simple categories – in order to measure the rewards
(which, generally speaking, you’ll hear a lot about from the
promoters) against the risks (er, less chatted up).

That’s what we’re going to cover today — with three broad strokes:
stage, stream and degree of novelty. There are only 18 combinations.
They are the first keys to unlocking opportunities.

3 Streams

There are lots of ways to sector out the biobased space. The most
useful way is to divide it, like oil &gas, into upstream,
midstream and downstream. The way these work are a little different,
and here’s how.Upstream. In a word, feedstocks – typically crops or
residues. Could be anything as mainstream as year’s corn crop, to
something as exotic as carbon monoxide and water or municipal solid
waste and sludge. A seed company or a grower fits into this
category. More exotically, an algae grower does too. Sometimes, a
polluter does, if there’s a residue in the mix. If you’re invested
in Syngenta, Monsanto or Ceres, you are right here.Midstream. These are the processing technologies. Could
be standard fermentation that has been used for centuries to make
alcohols from grain – could be exotic technologies that make
bio-oils and char. They could be owner-operators of projects, or
technology licensors. If you are invested in Solazyme, Gevo,
Renewable Energy Group or Amyris, you fit right here.Downstream. These are the molecules themselves – their
distribution into the marketplace.

2 degrees of novelty

There’s known, and there’s novel. For example, gasoline is known,
ethanol is novel (though less so).

Known molecules cause no infrastructure change or change in other
processes. Making renewable diesel or jet fuel is an example.

Novel molecules can be substitutes with new uses, such as using
biofene as a lubricant— or known molecules that have never been
feasible before (e.g. using adipic acid as an intermediate
pre-cursor for nylon 6,6 – which wasn’t economically feasible
before).

Known molecules have equivalent performance. Novel molecules can be
varied – they can perform better, or worse.

3 investment stages

There’s early stage, mid-stage and late-stage. Now, everyone has a
different definition – for instance, late-stage can mean “pre-IPO”
for VC investors. SO, here’s how we look at it.

Early stage. The proof of concept phase. Not just proving
that, for example, you can train an given organism to secrete a
hydrocarbon. It means — from the first moment of the idea until the
point where, at any scale, the process is shown to work and is
feasible.

This assumes that results hold up during scale-up, the molecule
performs as expected in an engine or in green chemistry, input and
product prices hold, and that the process bolts into the rest of the
field-to-wheels supply chain as expected).

Proof-stage. The point from proof of concept to proof of
process.

Late-stage. Process is proven, economics are known. From
here, it is a a matter of lining up location, customers and capital
in an optimal way. For example, Shell’s Gas-to-Liquids project in
Doha, Qatar.

OK, so you’re done. There are 18 different combinations – ranging
from “Early-stage, novel, upstream” (e.g. a jatropha seed developer)
to a “late-stage, known, downstream” (e.g. investing in a fuel
marketer that is distributing, as an offtaker, renewable diesel from
a producer’s sixth commercial plant).

You can use acronyms if you like. You use U, M or D for stream, E, P
or L for stage, and K or N for novelty. In the examples cited above,
you have ENU, and LND. There are just 18 combinations.

Assessing risk and opportunity

From that point, you can start to make some rational investment risk
assessments. It’s helpful to line up opportunities within categories
(like for like), and compare.

For example, early-stage investments tend to be smaller, and riskier
– than later-stage. The “will it work?” factor looms large,
early-on. Later, you have more certainty — and, as a result, less
upside. The more you understand technology and market forces, the
more you will like the early-stage.

Upstream technologies are more fully exposed to the biobased sector,
than midstream and downstream, while the farther you move down the
stream the more you are exposed to a market in a given molecule
(downstream), or the arbitrage between the molecule price and
feedstock price (midstream).

In terms of novelty — for sure, novel technologies have
transformative economics on price as well as cost – known molecules
tend to offer opportunities in terms of cost savings (cheaper
production) or market share shifts (as customers adopt, for example,
equally-priced molecules with attractive carbon attributes).

By contrast, novel technologies can have superior performance, or
can eliminate a step in a chemistry – even if they cost more, they
can offer customers amazing opportunities. But the more novel the
molecule, feedstock or technology, the more important the IP
protection is, and potentially devastating the loss of patent
protection is — speed to market will matter in terms of producing
ROI.

A real-world example

Let’s take a popular area for investment these days — adding
technology to enable an existing ethanol plant to make biobutanol.

They are currently in proof-stage, making known molecules, and
midstream. Call it a MPK.

So, there you have it. The biobased world of thousands of molecules,
a hundred feedstocks and several dozen technologies, parsed down
into 8 simple letters, and 18 combinations, that you can use to rate
opportunities for risk and reward.

October 14, 2012

Solazyme's Detours on the Way to Algae Biofuel

by Debra Fiakas CFA

Investors who took the time
to read my last two posts on algae-based biofuel – “Algae Takes
Flight” and “Emission Standards Driving Aviation Fuel
Sourcing” - might have wondered why there was no
mention of Solazyme, Inc. (SZYM:
Nasdaq). California-based Solazyme has been pursuing
algae-based oils for transportation since 2004, and managed to
record its first product sales in 2011. However, that revenue
was not from biofuel.

On the long road to finding a scalable and efficient way to get
renewable fuel from algae, Solazyme scientists found an interesting
extract from the microalgae that settled in the filters of
Solazyme’s culture tanks. The extract appeared to increase
cell regeneration and protect skin from ultra-violet rays.
Solazyme dubbed it “alguronic acid” and turned it into a line of
anti-aging skincare products under the brand name Algenist. They started
distributing the skin care products in 2011 in Sephora
stores in Europe, the Middle East and U.S. Those product
sales in 2011, totaled $7.2 million and were principally from its
“algae skin creams.”

This was not the first time Solazyme had found a market for
by-products of its processes that yield both oils and proteins from
microalgae. In 2010 the company launched a dietary supplement
called Golden Chlorella, but recorded no revenue in that
year. Golden Chlorella is an alternative to standard protein
sources such as soy or egg. It is now available at Whole Foods
and GNC stores.

While Golden Chlorella is not likely to show up on a
plate next to a steak, it has attracted the attention of Roquette, the French food
ingredients conglomerate. Solazyme entered into a joint venture
with Roquette for the development and marketing of food
products using algae proteins and oils. The partners
apparently have high hopes for a second food ingredient, “whole
algalin flour.” The flour was launched in 2012 at food trade
shows under the brand name Almagine. Solazyme sales reps
offered chocolate chips cookies made with the novel flour to prove
how tasty it is.

Skin care products using Solazyme’s microalgae extracts are already
generating respectable revenue. Solazyme’s oils and proteins
are expected to show up in food products on store shelves as early
as 2013. That may disappoint some investors who thought
Solazyme would turn the transport fuel market on its ear with an
algae-based biofuel.

A funny thing seems to have happened on the way to high volumes of
algae oil to power in cars and trucks. Solazyme accumulated a
vast knowledge base in microalgae and appears to have developed a
new respect for algae’s full potential. The company has not
given up on its objective to produce oils that can be substituted
for petroleum in chemicals and fuels. However, a singular
focus on one category would probably sell algae short. Like
petroleum there is opportunity for algae oils in pharmaceutical
applications. A bonus is that live algae present a third use
in nutritional applications.

Just the same, investors might look at Solazyme and suggest that
after nearly ten years in business with only nominal revenue and
significant losses, the company is an abject failure. (The
same investors might be content to wait twice that long for a
pharmaceutical company to bring a drug or market, but I will let
that go for now.) Particularly in this presidential election
year when the incumbent president has been criticized for support of
alternative energy, Solazyme might be a good whipping boy. The
company received $22 million in December 2009 from the Department of
Energy that was used to develop biofuel production capabilities in
Solazyme’s Peoria facility.

Before coming down to hard on Solazyme, it is important to note that
pharmaceutical and nutritional applications can be satisfied with
low volume production capacity. Furthermore, products aimed at
these market segments typically generate high margins. It
makes sense to target these markets first to support subsequent
development of high volume production capacity required for
transport fuel production. I do not think Solazyme should be
considered failure for pursuing what is just smart business.

To be fair, Solazyme has accumulated a deficit of $142.8
million. Despite $78.9 million in revenue earned from research
projects over the last six and a half years, the company has had a
fairly hefty bill to pay for research and development. Since
the beginning of 2006, research and development spending has totaled
$136.7 million. After its initial public offering in 2011, the
company geared up its R&D activities, spending over half of the
total R&D or $79.4 million in the last eighteen months.

So far Solazyme’s R&D efforts have earned it four patents and
adequate technology for another 150 patent applications (some are
duplicates in the U.S. and foreign jurisdictions). None of
this intellectual property is represented on Solazyme’s balance
sheet. Indeed, its tangible assets are near $239 million,
composed most of $185.5 million in cash and marketable
securities. The rest is principally property, plant and
equipment and receivables. On per share basis net tangible
assets (net of total liabilities) are approximately $3.40 per share
or nearly a third of the current stock price. This suggests
investors are valuing Solazyme’s intellectual property at around
$7.10 per share.

On the surface that value might seem fair, or even a premium, if the
investor has no confidence in Solazyme’s ability to launch a product
into its primary target market for chemicals and fuels. In the
next post, we will take a closer look at Solazyme’s sugar-to-oil
process and try to figure out the probability it can yield the
volumes needed to bring a return to Solazyme shareholders.

Debra Fiakas is the Managing Director of Crystal Equity
Research, an alternative
research resource on small capitalization companies in selected
industries.

Neither the author of the Small
Cap Strategist web log,
Crystal Equity Research nor its affiliates have a beneficial
interest in the companies mentioned herein.

September 07, 2012

The Hocky-Stick Growth of Biobased Intermediates

Super-cali-thali-terpa-butyl-peta what?

Jim Lane

The new trend in biofuels
is not a biofuel at all – it’s an (usually unpronounceable)
intermediate that can be refined into an array of fuels,
chemicals, flavors, fragrances, and construction or packaging
materials.

Ptera-buta-thalic-what? We
can hardly pronounce them, but we sure need to know about them.

Amyris (AMRS),
KiOR (KIOR),
Renmatix, Virdia, Blue Sugars, Proterro, Sucre Source, Sweetwater
Energy, Genomatica – hot companies all, what do they have in common?
Instead of making a finished end-product, they make an intermediate
which is then upgraded to a finished product, typically by partners.

The range of intermediates is broad.

The hottest category is renewable sugars, which has attracted
companies like Virdia, Blue Sugars, Proterro, Renmatix and
Sweetwater Energy. Their challenge? Produce low-cost,
high-performance renewable sugars that can be sold to synthetic
biology companies like LS9, Virent, or Gevo (GEVO),
who convert sugars into an array of useful end products ranging from
surfactant alcohols, base chemicals like isobutanol, or diesel, jet
or alcohol fuels.

Over at Amyris, they are producing biofene – essentially a known
molecule that is too expensive to produce using conventional
methods, and which they are marketing to partners as an excellent
intermediate that can be used in the production of, for example,
lubricants.

Over at KiOR, they are producing biocrude, using a pyrolysis process
and Southern yellow pine as a feedstock. Their product, in turn, is
sold to conventional oil refineries, that can upgrade that product,
using fully conventional refinery processes, into a finished drop-in
fuel.

At Genomatica, right now they are focused on a biobased BDO, or 1,4
butanediol, used as an intermediate in a host of products ranging
from spandex fibers to solvents and printing inks.

One’s intermediate is another’s end-use product

Part of the reason for the trend has been the proliferation of
biofuels strategy involving complex end-products, that are
traditionally made from intermediates.

Take plastic bottles, for example. That’s PET, or poly(ethylene
terephthalate).

(Try saying that three times real fast, and write me after you’ve
figured out how to pronounce the “(” because poly(ethylene
terephthalate) doesn’t really have any polyethylene in it. Sheesh.)

To make PET, you need monoethylene glycol, which is being made
renewably around the world today. But you also need purified
terephthalic acid (PTA), and to make that you need paraxylene. Until
now, no one has figured out a way to make paraxylene, renewably and
affordably – until Coke recently invested in Virent and Gevo, that
are developing ways to do it.

In Gevo’s case, they are converting their biobased isobutanol to PX.
Now, that isobutanol can also be used in its original form in green
chemistry. Or, it can be burned in an internal combustion engine as
a fuel molecule.

So you see, end products can be intermediates. And hopelessly
confusing to the general interest reader at exactly the same moment
that they are potentially transforming the way products are made
that general interest readers use in everyday life.

Why intermediates, why now?

Intermediates have become a fashionable strategy for a couple of
reasons.

One, the aforementioned complexity of renewable chemistry makes for
a lot of intermediate demand in the everyday world of Big Chemicals.

Two, as companies like LS9 and Virent head for scale, they can use
renewable sugar intermediates in place of, say, expensive corn
syrup.

Three, feedstock companies can participate in the biobased economy
without having to pick winners among the host of competing
molecules. They don’t need to choose between ethanol, triglycerides,
isobutanol, n-butanol, yada, yada, yada. They can make a renewable
sugar, and sell it to a host of customers that make end products.

Is that why investing in intermediates companies is becoming more
and more popular?

That’s a driving reason. Another is that the intermediate companies
are getting better at what they do, and more of them are popping up.
Take for instance, Waste Management (WM),
which is now getting deeply involved with Renmatix and renewable
sugars. That way, they don’t really have to worry as much about, for
example, the fate of the Renewable Fuel Standard in their investment
decisions. Because not all the customers are going to be making
qualifying fuels.

Wait a minute – aren’t all fuel companies really just
intermediate companies too, because can’t you make products like
ethylene from ethanol?

Well, yep you can, if you have an affordable way to make that
conversion, such as Dow has. Or ExxonMobil’s methanol-to-gasoline
(MTG) process – and so on. You’ll find that a lot of the companies
that are making cellulosic ethanol can make a lot of other products,
too – they have focused on ethanol precisely because of the RFS, and
because the vast demand for fuels creates assurances for investors
that there will be a ready market for the product that is far more
difficult to saturate than, for example, the market for succinic
acid.

Speaking of succinic acid, isn’t it a big part of the strategy
at companies like BioAmber and Myriant that they will be able to
use their biosuccinic acid as an intermediate for other products?

Yep. In fact, BioAmber has licensed DuPont hydrogenation catalyst to
make biobased 1,4 BDO from succinic acid. And from there, they can
get into the same kind of markets that Genomatica is looking at with
its direct-to-BDO process.

But aren’t intermediates really a story for biobased chemistry,
rather than fuels?

Not at all. In fact, intermediates are a part of the story, to come
extent, in the entire story of biofuels. With the exception of the
100% hydrous ethanol market in Brazil, all biofuels today are used
in blends – and to an extent, blend ingredients are intermediates,
although generally by intermediate we mean a product that will be
further refined, rather than blended.

More than that, KiOR’s strategy is a sign of the times. Making
affordable biocrude, and partnering with refineries to make finished
fuels and chemicals from that point – why, that’s one way to make a
the refining industry into happy supporters of instruments like the
Renewable Fuel Standard. Remember, they generally oppose the RFS not
because they think its bad for the planet, but because its bad for
the refining business by cutting into their production volumes and
creating all kinds of infrastructure demands on them at the same
time. By contrast, they don’t really give a fig where your crude oil
comes from – bio or fossil, they’ll happily take it all, if in-spec,
and available at affordable prices and with .

Why hasn’t this been done all along the way? What are some of the
down sides of intermediates?

A big issue is stability.

Biofuels are a little like wine and champagne – their chemistry can
continue to evolve, and in 6 months after sitting in a tank, what
you may not have is the same in-spec material you started with.
(That’s why, for example, champagne pops when you pull out the cork
– it has been fermenting in the bottle and that releases CO2, which
is what causes the pressure build-up).

Some molecules attract water, some oxidize. With renewable sugars,
there are fears that bacteria will have a field day and gobble up
the product if you try and transport renewable sugars via a pipeline
– and who knows what you’ll end up with at the other end.

Are intermediates inevitable? Is the integrated model dead?

Hardly. Solazyme (SZYM)
is an outlier in this case, and happily so. They aim to make some
intermediates – for example, they make an intermediate oil which is
hydroprocessed with partners to make Solajet aviation fuels. They
also will make ingredients – such as Whole Algalin Flour, that they
are making in partnership with Roquette and which will be used in a
whole range of food products.

But they are also making finished end products for customers – take
for example, their partnership with Dow to make dielectric fluids,
which are used in those big power transformers all over the world.
They are also, for example, not only making end-use products, but
selling them directly on the Home Shopping Network, as in the case
of their Algenist line of skin care products.

And take Avantium’s PEF product line, for example. Avantium’s YXY
(“icksy”) technology can produce PEF, or polyethylene furanoate, and
they believe that can replace traditional clear plastic (PET)
altogether. No need, ahem, to produce PX to get to PTA so you can
add MEG and get PET.

Or take companies like Mascoma, for example – they see
transformational economics in consolidated bioprocessing –
extracting sugars and fermenting into products, all at the one time.
But they, themselves, might very well be exploring the making of
intermediates from their process, even if they are not a big
customer for them.

The bottom line

Intermediates are a big trend.

Feedstock players like the optionality it gives them.

Processing technologies like the flexibility of buying intermediates
from a host of suppliers, or the option to produce intermediates as
well as end-products, in optimizing their production economics.

End-use customers – well, they don’t care except to the extent that
they get parity-or-better performance and parity-or-better cost.
But, of course, those are the very qualities that optionality are
likely to give them.

August 24, 2012

Jobs at Gevo

by Debra Fiakas CFA

Management teams at the helm of public companies often shade the
realities of their competitive or strategic situation, alternately
painting better circumstances or downplaying declining
fortunes. There are myriad ways of giving management’s
guidance a reality check. Renewable bio-chemicals developer Gevo, Inc.
(GEVO:
Nasdaq) is on my “watch list” as one of the more interesting
companies in the Beach
Boys Index.

Gevo’s financial results missed the consensus estimate in both the
March and June 2012 quarters, but management made claims of
important victories. Gevo has won important decisions in the
disagreement between Gevo and Butamax
Advanced
Biofuels over process technologies related to the production
of isobutanol. Butamax had alleged infringement of its patents
by Gevo and had attempted to halt Gevo’s continued progress through
an injunction. Gevo recently took the offensive, asking a
federal court for a declaratory judgment on the validity of a
Butamax patent.

Gevo’s confidence extends beyond the court room. The Company
has continued to line up technology and distribution partners as
well as customers for its renewable chemicals products. Recent
Gevo presentations include slides with a collection of impressive
corporate logos - Sasol (SSL),
Total, Toray, United Airlines and CocaCola among others.

Management appears to be ready to put its money behind its public
pronouncements. The corporate web site lists several open
positions for technicians, including molecular biologist,
biochemist, analytical chemist and fermentation specialists.
All are ostensibly for Gevo’s homebase in Englewood, Colorado and
all appear to be focused on development activities rather than
commercial production. It would be more comforting to see open
positions for the type of activities that would lead directly to
revenue. Then perhaps we could dial in higher sales estimates
than what is reflected in the current consensus estimate. The
bevy of research analysts currently covering Gevo think revenue is
likely wind up at half the level last year.

Gevo is not immune to the unfolding economic reality for corn-based
biofuels and chemicals. That could be a problem. Without
a significant increase in sales volume or prices, Gevo may not be
able to make a dent in its current cash burn rate near $12.0 million
per quarter. Given the $38.6 million on the balance sheet,
Gevo appears to have only enough resources to last through the first
quarter 2013.

Debra Fiakas is the Managing
Director of Crystal Equity
Research, an alternative
research resource on small capitalization companies in selected
industries.

Neither the author of the Small
Cap Strategist web log,
Crystal Equity Research nor its affiliates have a beneficial
interest in the companies mentioned herein. GEVO
is included in Crystal Equity Research’s Beach
Boys Index.

December 23, 2011

The "Jesus" Molecule: Paraxylene

Jim Lane

The Coca-Cola Company invests in Gevo, Virent and Avantium
partnerships, in the race to develop renewable plastic bottling
entirely from renewables.

There’s been an awful lot of press this week about progress in the
search for the God particle. That’s the subatomic Higgs Boson — a
key, but as yet undetected, anchor in the standard model of the
universe.

Then there’s the Jesus molecule. As in, “Kind lord Jesus in Heaven,
grant me an affordable way to make one of those.”

It’s renewable PX, also known as your friend, paraxylene — a key,
but as yet undiscovered at affordable cost, anchor in the production
of plastic bottles entirely from renewables. (“PX” also accidentally looks not
entirely unlike the Chi-Rho, one of the earliest symbols for Jesus
Christ.)

That’s the story for Main Street. Here’s the story for Wall Street.
It’s the key molecule to unlocking a global market for renewables of
54 million metric tons, and an annual trade of $100 billion.

The search for renewable PX took a new twist yesterday in New York,
when the Coca-Cola
Company turned on the klieg lights to announce multi-million
dollar investment and partnership agreements with Gevo (GEVO),
Virent and Avantium. The goal? To accelerate development of the
first commercial solutions for its next-generation PlantBottle
packaging, using renewable PX.

Since introduced in 2009, the Company has already distributed more
than 10 billion first-generation PlantBottle packages in 20
countries worldwide with up to 30 percent renewable content. With
this announcement, Coke aims for 100 percent plant-based packaging,
at scale, by mid-decade.

The goal with each of these three agreements is to ensure that the
companies a) produce the materials that Coke needs, b) produce them
in big quantities, and c) as soon as possible, please.

Coke and its 3 renewable PET shops

What is Coke plastic bottling? It is a material called PET (For you
Digest purists: polyethylene terephthalate. Say that three times
real fast.) For now, key in on that polyethylene, then that
ethylene. It’s a form of polyester that is see-through, and is an
excellent barrier material. Not much gets through these little
molecules.

Accordingly, it’s become the third most widely-produced polymer in
the world, after polyethylene and polypropylene. PET makes up about
20 percent of the world’s polymer production, and about 30 percent
of that PET goes into making plastic bottles.

In short, Coke and Pepsi have a big stake in a big game.

Over the past few years, both companies have been working flat-out
to produce a plastic bottle made entirely from renewables. Two years
ago, Coke came out with its first-gen PlantBottle technology.

Ok, here’s where the story will get a little technical, so grab a
snack and a pencil.

To make a partially-renewable PET, Coke is using about 30 percent
MEG (that is, mono-ethylene glycol), which it is making from biomass
already. The other 70 percent comes from PTA (purified terephthalic
acid.

In other words, MEG+PTA = plastic bottle.

To date, they still have been using traditional fossil materials for
the PTA. That’s where Coke’s announcement makes waves.

OK, how do you make PTA from renewables?

Well, to make PTA, you have to make something called paraxylene,
it’s the principal precursor. In the industry, it’s known as PX. And
bottle production chews up about 98 percent of global paraxylene
production each year. (Read this, and then forget it: Basically,
it’s a benzene ring, with a pair of methyl molecules attached to
it.)

What you need to know is that PX is a hydrocarbon.

Why not just use, say, polyethylene?

Good news, Coke does, in Odwalla juice products. Works for juice in
the fridge. Does not work for products outside of the fridge,
especially carbonated ones.

What about some other molecules?

First milestones in that agreement include the start-up of an
Avantium PEF pilot plant, officially opened on December 8th in
Geleen, the Netherlands. It is expected that other large
co-development partners will join from early 2012.

Back to the PX, then. The tip-offs.

OK, turns out that, according to all of the 30 or so companies they
looked at, Virent and Gevo had the best available technology
(available for co-development, that is) that can make paraxylene.

“Production ramp on pace. The retrofit of Gevo’s first commercial
plant in Luverne remains on track for a 1H12 start-up. The
500,000 liter/year plant at the South Hampton facility should come
online by year-end, initially producing jet fuel, and later,
gasoline and paraxylene (for PET applications) to support
certification processes. Gevo expects to receive ASTM
certification for its jet fuel in 2013. Management affirmed
the target of 350 million gallons in 2015, unchanged from the IPO.”

“Virent says that producing PET from waste
such as corn stover and pine residuals is more difficult than
from sugars but that it can be done. The company makes paraxylene, a
PET feedstock, from sugars. Expectations are that its
commercial scale facility will be online in late 2014.”

As far back as June, Digest readers had an early tip from Avantium:

“Avantium is building a pilot plant to
demonstrate its YXY technology which enables the cost effective
production of Furanics building blocks for green materials and
fuels. This will facilitate the development and commercialization of
Avantium’s next-generation polyester: PEF…Avantium has demonstrated
that PEF has numerous superior properties when compared with PET,
including lower permeability of oxygen, carbon-dioxide and water and
an enhanced ability to withstand heat.”

The business case

“In the case of a Gevo-retrofitted plant, the biorefiner can produce
biobutanol plus co-products, or paraxylene and the same co-products
– to give one example. Turns out, in renewable fuels as well as
elsewhere, it takes two (products) to tango. Pricing moves around in
these volatile markets, but as a rule of thumb, paraxylene prices at
around a 25 percent premium to ethanol (after taking into account
the lower yields of isobutanol, per ton of feedstock). PET sells for
roughly a 125 percent premium.”

Botttom line, you can make good money in this market. Things, as it
turns out, do go better with Coke.

What’s a Pepsi to do?

Well, over at Pepsi they haven’t tipped their hand, except that last
March they declared that they had a solution in hand of their own to
produce renewable PET. This week, they said they were planning a
pilot run of up to 200,000 bottles using their new process, but no
one is sure when this will reach commercial scale, or even if the
Pepsi process will be commercially feasible.

In Coke’s case, it is looking like 2014-15.

Reaction from Gevo

“We are extremely gratified to have won the confidence of The
Coca-Cola Company and are excited to support Coca-Cola’s sustainable
packaging goals with this agreement to develop and commercialize
technology to produce paraxylene from bio-based isobutanol,” said
Patrick Gruber, CEO of Gevo. “New technologies need champions. The
Coca-Cola Company is in a unique position to drive and influence
change in the global packaging supply chain with this development.
You cannot ask for a better champion than one of the most respected
and admired consumer brands.”

Reaction from Avantium

“Our YXY solution for the packaging industry creates a new biobased
plastic with exceptional functional properties at a competitive
price. We believe it is economically viable and has a significantly
reduced environmental footprint,” said Tom van Aken, CEO of
Avantium. “We have produced PEF bottles with promising barrier and
thermal properties and look forward to our work with Coca-Cola to
further develop and commercialize PEF bottles. Our production
process fits with existing supply and manufacturing chains and we
are targeting commercial production in the next few years.”

Dutch research and technology company Avantium has developed a
patented technology YXY to produce 100% biobased PEF bottles.
Currently PET is the most widely used oil-based polyester. Based on
the performance of the new PEF material, Avantium believes PEF will
become the next-generation biobased polyester.

Reaction from Virent

“The company is targeting early 2015 for the opening of its first
full-scale commercial plant. Virent’s long term agreements with The
Coca-Cola Company are pioneering milestones in the commercialization
of our technology to produce plant-based materials” said Virent CEO
Lee Edwards. “Our patented technology features catalytic chemistry
to convert plant-based sugars into a full range of products
identical to those made from petroleum, including bio-based
paraxylene – a key component needed to deliver 100% plant-based PET
packaging.”

Reaction from Biofuels Digest

I’d like to buy the world a home
and make it very green
grow apple trees and honeybees
to make my bottles clean

I’d like to teach the world to synth
in perfect laboratories
I’d like to buy PX for Coke
from these three companies.

November 16, 2011

BioAmber’s $150 Million IPO: The 10-Minute Version

A first-to-market leader in bio-succinic acid comes to the
public markets with its IPO.

Can BioAmber translate a lead in succinic acid’s smallish market
into leadership in a vast array of high-priced renewable
chemicals?

Here’s our 10-minute version of the BioAmber IPO, with a
translation of the risks into English.

In Minnesota, BioAmber
has filed an S-1 registration statement for a proposed $150
million initial public offering. The number of shares to be
offered in the proposed offering and the price range for the
offering have not yet been determined. The lead book-running
managers for the offering are Goldman, Sachs & Co. and Credit
Suisse Securities (USA) LLC. The additional book-running manager
is Barclays Capital. The co-managers are Stifel, Nicolaus &
Company, Incorporated and Pacific Crest Securities LLC.

The company is currently ranked #143rd in the world in the 50
Hottest Companies in Bioenergy. The rankings recognize innovation
and achievement in fuels and are based on votes from a panel of
invited international selectors, and votes from Biofuels Digest
subscribers.

Here’s the S-1 registration, in a conveniently downsized
10-minute Digest version – with some commentary along the way as
to what is driving value in the BioAmber model, opportunities for
the intrepid investor, and some risks which we have translated
from the ancient and original SEC into modern English.

Company Overview

From the S-1: “We are a next-generation chemicals company. Our
proprietary technology platform combines industrial biotechnology,
an innovative purification process and chemical catalysis to
convert renewable feedstocks into chemicals that are
cost-competitive replacements for petroleum-derived chemicals.

“We manufacture our bio-succinic acid in a facility using a
commercial scale 350,000 liter fermenter in Pomacle, France…We
have produced 487,000 pounds, or 221 metric tons, of bio-succinic
acid at this facility…We believe we can produce bio-succinic acid
that is cost-competitive with succinic acid produced from oil
priced as low as $35 per barrel, based on management’s estimates
of production costs at our planned facility in Sarnia, Ontario and
an assumed corn price of $6.50 per bushel.

“We have secured funding to construct the initial phase of our
next global-scale facility in Sarnia, Ontario and we intend to
build and operate two additional facilities, one located in
Thailand and the other located in either the United States or
Brazil.

“We expect to begin recording revenue from commercial sales of
our bio-succinic acid in the first quarter of 2012…We also intend
to leverage our proprietary technology platform and expertise in
the production of bio-succinic acid to target additional high
value-added products, such as bio-BDO, PBS, de-icing solutions and
plasticizers. In addition, we are also working to expand our
product portfolio to additional building block chemicals,
including adipic acid and caprolactam.

“Since our inception, we have raised an aggregate of $76.1
million from private placements of equity securities and
convertible notes.”

The Technology

From the S-1: “Our proprietary technology platform combines
industrial biotechnology, an innovative purification process and
chemical catalysis to convert renewable feedstocks into chemicals
that are cost-competitive replacements for petroleum-derived
chemicals. The development of our current organism was originally
funded by the DOE in the late 1990s, was further developed
and scaled up, and optimized at the large-scale manufacturing
facility in France.

“We believe our solution enables us to address multiple large
chemical markets, including polyurethanes, plasticizers, personal
care products, de-icing solutions, resins and coatings, food
additives and lubricants, that are currently being served by
petrochemicals.

3 Key Qualities

2.. Using less feedstock per ton of output than most other
sugar-based processes for biochemicals other than succinic acid;
and

3. Significantly lower greenhouse gas emissions than the
processes used to manufacture petroleum-based products by
sequestering carbon dioxide in the process of producing
bio-succinic acid.

The Market

From the S-1: “First, we intend to replace petroleum-based
succinic acid in applications where it is currently in use, such
as food additives, as well as expand into new applications, such
as plasticizers, where bio-succinic acid has demonstrated superior
performance or economics to incumbent petrochemicals.

“Second, we intend to convert bio-succinic acid to bio-BDO and
THF, which are large volume chemical intermediates that are used
to produce polyesters, plastics, spandex and other products.

“Third, we intend to use our bio-succinic acid in the production
of PBS, which enables this polymer family to be partially
renewable, and modified PBS, or mPBS, which provides these
products with higher heat distortion temperature and improved
strength.

“We believe that these three market opportunities for our
bio-succinic acid platform provide us with access to a more than
$10 billion market opportunity.”

Current applications for bio-succinic acid include:

Plasticizers. We
believe the addressable market for plasticizers exceeds $1 billion.
Polyurethanes. We believe the addressable
market for polyurethanes exceeds $1 billion.Personal Care Products. We
believe the addressable market for succinic acid and succinate
esters in the personal care industry is approximately $500 million.
De-icing Solutions. We believe the addressable market
for de-icing solutions exceeds $500 million.
Resins and Coatings. We believe the addressable market for
resins and coatings exceeds $500 million.
Food Additives. We believe the addressable market for
food additives is approximately $200 million.
Lubricants. We believe the addressable market for
lubricants is approximately $100 million.

C6 Building Block Chemicals

From the S-1: “We expect to use our flexible technology platform,
including our partnership with Celexion, to expand our product
base to C6 building block chemicals, starting with bio-adipic
acid, by leveraging our extensive experience developing, producing
and marketing bio-succinic acid. We also plan to produce biobased
caprolactam and biobased hexamethylenediamine (HMDA). We
believe the addressable market for adipic acid is approximately
$6.5 billion. We believe the addressable market for
caprolactam is approximately $14.5 billion. We believe the
addressable market for HMDA exceeds $3 billion.”

The Commercialization Plan

From the S-1: “In order to support our growth, we plan to rapidly
expand our manufacturing capacity beyond the current production at
the Pomacle, France facility. We have entered into a joint venture
with Mitsui to finance, build and operate a manufacturing facility
in Sarnia, Ontario through our Bluewater Biochemicals, Inc.
subsidiary in which we own a 70% equity interest and Mitsui owns
the remaining 30%. The joint venture agreement also establishes
our intent to build and operate two additional facilities with
Mitsui, one located in Thailand and the other located in either
the United States or Brazil.

“For future facilities, we expect to enter into agreements with
partners on terms similar to those in our agreement with Mitsui
and we intend to partially finance these facilities with debt. We
expect to use available cash and the proceeds of this offering to
fund our initial facilities, as well as our commercial expansion
and product development efforts. For additional future facilities,
we currently expect to fund the construction of these facilities
using internal cash flow and project financing.”

The Risks, Translated from SEC-speak

Among the lowlights of reading S-1 registrations are the endless
pages of risk disclosures (in BioAmber’s case, 28 pages of them)
couched in an alloy of SECspeak and legalese. We offer these
excerpts from the original S-1, and a translation into English,
prepared by our Digest lexicologists.

In SECspeak: ”We have a limited
operating history, a history of losses, anticipate continuing to
incur losses for a period of time, and may never achieve or
sustain profitability.”

In English: “Our
investors have grown tired of losing their money, and have
encouraged this IPO in the hope of losing some of yours.”

In SECspeak: “We may not obtain the
additional financing we need in order to grow our business,
develop or enhance our products or respond to competitive
pressures.”

In English: “Now that we
are losing some of your money, you might run out.”

In SECspeak: “The funding,
construction and operation of our future facilities involve
significant risks, which may prevent us from executing our
expansion strategy.”

In English: “The Titanic
is, after all, practically unsinkable.”

In SECspeak: “Our prior success in
developing bio-succinic acid may not be indicative of our ability
to leverage our bio-succinic acid technology to develop and
commercialize derivatives of bio-succinic acid and other bio-based
building block chemicals.”

In English: “To make the
real bucks, we got to make all that other stuff that we haven’t
actually practiced making yet.”

In SECspeak: “Demand for our
bio-succinic acid, bio-BDO and other bio-succinic acid derivatives
may take longer to develop or become more costly to produce than
we anticipate, and technological innovations in our industry may
allow our competitors to produce them at a lower cost, which may
reduce demand for our products.”

In English: “We may be
kidding about everything in this IPO, except the bits about how
tough this market is to crack.”

In SECspeak: “We are dependent on our
relationships with strategic partners, licensors, collaborators
and other third parties for research and development, the funding,
construction and operation of our manufacturing facilities and the
commercialization of our products and our failure to manage these
relationships could delay or prevent us from developing and
commercializing our products.”

In English: “Help, I need
somebody, / Help, not just anybody, / Help, you know I need
someone, / Help!”

In SECspeak: “Our inability to
adequately protect and enforce our intellectual property, or to
prevent the operation of our business from infringing the
intellectual property of others, may make it difficult or cost
prohibitive to carry on our business as currently planned.”

In English: “We bring
knives to what may well become a gunfight.”

BioAmber as it sees itself: 7 Competitive Strengths

Proprietary Technology
Platform that Addresses a Large Market Opportunity. We
own or have exclusive rights to specific microorganisms, chemical
catalysis technology and a unique, scalable and flexible
purification process.

Selling Commercial Product Today. We
have sold bio-succinic acid to 12 customers in 2011. We believe we
are the first and only company selling bio-succinic acid products
in commercial quantities.

Proven Cost-Competitive
Economics at Large Scale. We expect to produce
bio-succinic acid at our planned facility in Sarnia, Ontario that
is cost-competitive with succinic acid produced from oil priced as
low as $35 per barrel.

Limited Exposure to the
Availability and Price of Sugar. Our process requires
less sugar than most other renewable products because 25% of the
carbon in our biosuccinic acid originates from carbon dioxide.

Established, Diverse Customer
Base. We have entered into supply agreements for the sale
of over 84,000 metric tons of bio-succinic acid and its
derivatives over the next five years.

Third-Party Commitments for
Global Manufacturing Expansion. We have signed an
agreement with Mitsui to jointly build a facility in Sarnia,
Ontario…[and our] agreement with Mitsui contemplates the
construction and operation of two additional facilities.

Experienced Management Team with
Strong Track Record. Our management team consists of
experienced professionals, possessing on average over 25 years of
relevant experience in scaling up, manufacturing and
commercializing chemicals, at Cargill, DuPont, INVISTA, Dow
Corning, GE, Royal DSM and Genencor.

Financing to date

From the S-1: “We issued 11,659 shares of common stock, 33,655
shares of preferred stock and warrants to purchase 18,769 shares
of common stock at exercise prices between $37.52 and $100.00.

“On February 6, 2009, we issued secured debentures and
warrants for 18,760 shares of common stock at a per share cost of
$50.00 for aggregate consideration of $938,000.

“On June 22, 2009, we issued in a private placement a
secured convertible promissory note and warrants for 5,970 shares
of common stock to FCPR Sofinnova Capital VI for gross proceeds of
$4 million.

“On October 22, 2009, we issued in a private placement an
aggregate of 59,702 shares of common stock at a per share cost of
$201.00 for aggregate consideration of $12 million.

“On February 1, 2010, we issued 5,000 shares of common stock
at a price of $201.00 per share to Shanghai KEQI and Sinoven LLC.

“On November 23, 2010, we issued secured convertible promissory
notes in a private placement for gross proceeds of $4 million. The
promissory notes were converted into 10,833 shares of common stock
and warrants to purchase 2,707 shares of common stock at an
exercise price of $369.14 with a ten-year term.

“On April 15, 2011, we issued in a private placement an
aggregate of 121,904 shares of common stock and warrants for 2,707
shares of common stock at a per share cost of $369.14 for
aggregate consideration of $44,999,643.”

“On November 4, 2011, we issued in a private placement an
aggregate of 20,061 shares of common stock at a per share cost of
$997.00 for aggregate consideration of $20 million to
Naxamber S.A., FCPR Sofinnova Capital VI, Mitsui & Co.,
Ltd. and Clifton Equities Inc.”

The bottom line

Well, it really comes down to this. There isn’t much of a market
in succinic acid. About 40,000 metric tons and $300 million. About
the capacity of a standard ethanol plant – one. So, you have
to take it, on essentially BioAmber’s say-so, that they can use
their low-cost succinic as a base from which to chase everyone’s
else’s high-priced other stuff.

On the side of belief, there’s a range of management talent and
expertise at BioAmber that Wyatt Earp would have been proud to
lean on at the OK Corral. Plus, you have the say-so of Mitsui, a
Japanese trading house of long lineage and a distinct “no dummies”
hiring policy. And, there’s a nice first-mover advantage.

But then there are the risks. For one, that Verdezyne might wrap
up bio-based adipic acid before BioAmber gets there, as Genomatica
might wrap up BDO. The risk that BioAmber might not get to C6
building blocks as fast or cost effectively as they hope.

Outside of the C6 platforms, there’s $3.8 billion in addressable
markets cited in the S-1. Figure 20 percent for the bio-based
products in the near-term, that’s around $700 million. How much of
that can BioAmber lock down in the near-ish term to provide
meaningful cash flow to finance further expansion, and how much do
they need to lock down to provide returns commensurate with a $150
million cash raise in the IPO?

So, it’s a bet – on a pre-revenue company with a hot technology
and a meaningful market – if it can get there. Like many
IPOs in this space this past year, it’s a financing event for the
company’s expansion, rather than a liquidity event for the current
investors. The current investors – well, they’d like to spread the
risk by broadening the investor base before the company pushes
through to commercial scale. It’s an oft-told tale – nothing
daunting in that, per se.

Like a first-mover advantage in succinct acid, one that may
translate into a lead in some of the biggest markets that will
come by in renewable chemicals? Here’s the train for you.

If the risks are high, the rewards will be high for the daring
investor who throughly vets the opportunities in the market, as
well as the aptitude of the magic bug for all the work ahead that
BioAmber has scheduled it to do.

September 25, 2011

Elevance’s $100M IPO: The 10-Minute Version

Like to quickly understand the
surge in renewable chemicals and one of the hottest
companies in the hottest sector of the bioconomy?

Here’s our 10-minute version of
the IPO from Elevance Renewable Sciences. Complete with the
risks, translated into English from the original SEC-speak.

In Illinois, Elevance Renewable Sciences filed its S-1
registration statement relating to a proposed $100 million initial
public offering. The number of shares to be offered and the price
range for the offering have not yet been determined. The
company indicated that it has apply to list the stock on NASDAQ
under the ERSI symbol.

The company is currently ranked #15 in the world in the 2011-12
“30 Hottest Companies in Renewable Chemicals and Materials”
rankings. The rankings recognize innovation and achievement
in fuels, and renewable chemicals or materials development,
respectively, and are based on votes from a panel of invited
international selectors, and votes from Digest subscribers.

With this filing, Elevance becomes the 11th company to file for
an IPO in the industrial biotech boom, which began with a
successful listing on the NASDAQ by Codexis in 2010. IPOs by Amyris
(AMRS), Gevo
(GEVO), Solazyme
(SZYM), and KiOR
(KIOR) have followed. In recent months, PetroAlgae (PALG.OB),
Myriant, Ceres, Genomatica and Mascoma have also filed S-1 registrations for proposed IPOs.

Here’s the S-1 registration, in a conveniently downsized
10-minute Digest version – with some commentary along the way as
to what is driving value in the Elevance model, some opportunities
for the intrepid investor, and some risks which we have translated
from the ancient and original SEC into modern English.

Elevance’s IPO: The 10-Minute Version

Based in Illinois, Elevance Renewable Sciences creates high value
specialty chemicals from natural oils using a Nobel Prize winning
technology. The company creates ingredients for use in personal
care products, detergents, fuels and lubricants, among other
applications.

Elevance’s proprietary patent-protected technologies transform
renewable plant-based oils into specialty, high performance green
chemical products without the environmental risks of traditional
petrochemical solutions. Elevance’s innovative technology is based
on the work of Nobel Laureate Dr. Robert H. Grubbs, who pioneered
the olefin metathesis catalyst development at The California
Institute of Technology.

Elevance was created on the premise that a high performance,
renewable, capital light, partnership-based business model
will provide a unique market position based on a significant and
sustainable advantage in the specialty chemicals market. The
company has achieved rapid growth as a result and continues to
focus on establishing unique partnerships and collaborations.

Markets: Specialty Chemicals

According to Datamonitor, the size of the global specialty
chemical industry was approximately $706 billion in 2010. They
currently estimate the addressable specialty chemical markets
represent $176 billion in annual commercial opportunity. Specific
targets include surfactants, lubricants and additives and
polymers.

Markets: Intermediate Chemicals

They estimate that the total size of the oleochemical market was
$38 billion in 2010. They estimate that the total size of the
intermediate olefin market was $7 billion in 2008. This
intermediate olefin market, on which they focus olefin production,
consists of higher value olefins, specifically linear alpha
olefins or linear internal olefins with ten or more carbon atoms.

The Technology

Their proprietary catalyst and process technology enables them to
produce both unique specialty chemicals from biomass-based oils,
including soybean, palm and rapeseed (canola) oil, with desirable
functional attributes previously unavailable in the marketplace,
as well as key intermediate chemicals that are in limited supply.
These natural oils are available in liquid form in industrial
quantities from a variety of geographic regions. These
characteristics allow for low-cost transportation and storage
compared to other renewable feedstocks such as industrial sugars,
biomass and waste. Their ability to adjust inputs in real time
allows them to take advantage of changes in feedstock prices and
product demand.

Their specialty chemicals provide functional attributes that
customers desire but that have not been commercially available at
competitive prices. Their intermediate chemicals are direct
replacements for olefins and oleochemicals for which demand is
growing and supply is constrained. Their ability to use a wide
variety of natural oil feedstocks and to produce our intermediate
chemicals in several regions can help our customers mitigate input
cost volatility and reduce supply concerns.

The Strategy

Complete rapid deployment of multiple
world-scale facilities. They expect to have three world-scale
facilities by the end of 2014, with combined annual production
capacity of approximately one million metric tonnes (2.2 billion
pounds).

Develop new and existing market partnerships to
accelerate growth and maximize profitability. To accelerate
growth, they plan to continue cultivating strategic partnerships
with: Cargill, one of the world’s largest agribusinesses; Clariant
International, a leading global specialty chemicals company; Dow
Corning, a global leader in silicone-based technology and
innovation; Royal DSM, a global science-based company; Stepan, a
leading producer of surfactants; and Wilmar. These partners
provide Elevance with sales and marketing expertise, established
distribution channels, technical know-how, product and application
development expertise and manufacturing infrastructure.

Invest in research and development to enhance
product performance characteristics. They intend to leverage the
intellectual property portfolio to target solutions for customers
demanding higher performance chemicals than those offered today.
They plan to continue to develop new specialty chemicals with
increased functional attributes, such as highly concentrated
detergents and lubricants that enable better fuel economy.

Leverage feedstock flexibility to maximize
margins. They continuously monitor the costs of various feedstock
alternatives to take advantage of their imperfect price
correlations to each other and to selling prices.

The Near-term Commercialization Plan

Tolling. Their products are currently
manufactured at commercial scale using tolling facilities,
enabling them to validate their target cost of production for the
biorefineries.

First commercial facility. Elevance is building
an integrated biorefinery in Gresik, Indonesia, as part of a 50/50
joint venture with Wilmar International Limited, the largest
global processor and merchandiser of palm, palm kernel and coconut
oils. They plan to begin commercial operations at this facility by
the second quarter of 2012. The Indonesia facility, at a total
construction cost of approximately $30 million, is fully funded
and currently under construction. The Indonesia facility will have
an annual production capacity of 185,000 metric tonnes (400
million pounds), with an option to expand the annual production
capacity to 370,000 metric tonnes (810 million pounds).

Second commercial facility. Elevance is
repurposing an existing facility in Natchez, Mississippi into a
280,000 metric tonne (610 million pound)integrated biorefinery.
The plan is to be operating in the second half of 2013.

Third commercial facility. By the end of 2014,
they expect to be operating an additional world-scale facility in
South America.

Overall, they expect construction of the first two facilities to
cost $165 to $360 per metric tonne ($0.07 to $0.16 per pound) of
annual production capacity compared to $920 to $2,300 per metric
tonne ($0.42 to $1.04 per pound) of annual production capacity for
conventional facilities.

Elevance as it sees itself: 8 Competitive Strengths

Proprietary technology. The proprietary
metathesis technology platform is based on Nobel Prize-winning
innovations in metathesis catalysis. The platform enables them to
produce high-value specialty chemicals and direct replacement
intermediate chemicals that are cost-advantaged compared to those
available from conventional production methods.

High performance products. The specialty
chemicals have unique and desirable functional attributes
previously unavailable in the marketplace. They are currently
commercializing products such as fuel additives and personal care
products that have enhanced performance features. In addition,
they have demonstrated our ability to secure a premium price for
certain high performance specialty chemicals.

Low capital requirements. The biorefinery design
requires less capital per unit of production than conventional
technologies because of the following characteristics: (1) fewer
major process steps; (2) lower operating temperatures and
pressures; (3) limited production of hazardous and toxic
by-products; and (4) the ability to integrate the process into
existing industrial sites.

Established partnerships with industry leaders.
They have developed strategic partnerships which provide us with
sales and marketing expertise, established distribution channels,
technical know-how, product and application development expertise
and manufacturing infrastructure.

Feedstock flexibility. The primary feedstocks
include palm, soy and rapeseed oils, though our technology has the
flexibility to use many other natural oils. Their ability to
adjust our inputs in real time allows them to take advantage of
changes in feedstock prices and product demand.

Large and well-established end markets. The
technology enables them to target a wide variety of end markets.
They currently estimate the addressable specialty chemical markets
represent $176 billion in annual commercial opportunity.

Rapid deployment of commercial production. They
can rapidly deploy the technology because of: (1) an ability to
repurpose or integrate into existing industrial sites; (2) a low
capital requirement per unit of capacity; (3) existing and
available large markets for the products; and (4) a relatively
short engineering, procurement and construction cycle.

The Risks, Translated from SEC-speak

In SEC speak: We are an early stage company with a limited
operating history and have incurred substantial net losses since
our inception, including net losses attributable to our common
stockholders of $14.9 million, $23.7 million and $33.6 million
for the years ended December 31, 2008, 2009 and 2010,
respectively. As of June 30, 2011, we had an accumulated deficit
of $188.8 million. For the foreseeable future, we expect to
incur additional costs and expenses related to the continued
development and expansion of our business…anticipate continuing
to incur losses for a period of time, and may never achieve or
sustain profitability.”

In English: “We blew through nearly $200 million building
either a transformative business or a money pit, we’re not 100%
sure which.”

In SEC speak: We have generated limited revenues from the
sale of our products and we face significant challenges to
developing our business.

In English: “Now that we think of it, not everyone in the
world actually bought an Iridium sat-phone.”

In SEC speak: The specialty chemical markets in which we
operate are subject to litigation regarding patents and other
intellectual property rights. In addition, many companies in
intellectual property-dependent industries, including the
chemical industry, have employed intellectual property
litigation as a means to gain an advantage over their
competitors. Currently, Materia is defending against a lawsuit
filed by Evonik Degussa, in which Evonik Degussa has alleged
that Materia has infringed its U.S. patents relating to specific
types of catalysts for olefin metathesis chemical reactions.

In SEC speak: We may encounter significant delays, cost
overruns, engineering problems, equipment supply constraints or
other unexpected difficulties which could cause construction to
cost more than we currently anticipate.

In English: “We may be just kidding about those low
capital requirements.”

In SEC speak: We lack direct experience operating world-scale
commercial biorefineries, and may encounter substantial
difficulties operating such biorefineries or expanding our
business. We have never operated a world-scale commercial
biorefinery. We have only completed two commercial-scale toll
production runs of specialty chemicals and intermediate
chemicals utilizing our proprietary biorefinery technology using
palm oil.

In English: “We hear that there’s a difference between
running a lemonade stand and Minute-Maid.”

In SEC speak: The price and availability of our feedstocks
may be influenced by general economic, market and regulatory
factors and may be cyclical or volatile. The supply of
feedstocks may be interrupted by growing season disruptions, low
crop yields, crop disease, droughts, floods, infestations,
natural disasters, farming decisions or governmental policies
and subsidies. In particular, weather conditions have
historically caused volatility in certain portions of the
agricultural industry by causing crop failures or reduced
harvests.

Financing to date

November 2007, sold to Cargill, 50,000 shares of
our common stock and 843,645 shares of our Series A preferred
stock in exchange for Cargill’s contribution of the NatureWax
business and Cargill’s agreement to terminate certain license and
other contractual rights it held under certain agreements between
it and Materia; to Materia, 50,000 shares of our common stock and
843,645 shares of our Series A preferred stock in exchange for
Materia’s assignment of all right, title and interest to the
contributed NatureWax assets; and to each of the TPG Funds,
2,530,934 shares of our Series B preferred stock in exchange for
approximately $45.0 million.

October 2009, March 2010 and August 2010,
Elevance received $10.0 million in exchange for the issuance to
the TPG Funds of $10.0 million in convertible promissory notes and
warrants to purchase shares of our Series B preferred stock for
$8.89 per share, for a total of $30.0 million in financing.

December 2010, issued 5,649,718 shares of Series
C preferred stock in exchange for approximately $70.0 million in
cash and $30 million in the conversion of long-term debt. Naxos
Capital Partners S.C.A. SICAR, a Luxembourg-based private equity
group, led the round with additional new investors including Total
Energy Ventures International, the venture capital arm of French
oil and gas company Total, joining TPG Star and TPG Biotech in the
financing.

June 2011, investors purchased 2,556,238 shares
of our Series D preferred stock in exchange for $50.0 million in
cash. Naxos Capital Partners led the round which consisted of
previous investors in the Company. In June 2011, the Company
entered into an asset purchase agreement with Delta Biofuels, Inc.
to acquire a biodiesel production facility in Natchez,
Mississippi.

The bottom line

One of the best aspects of the renewable chemicals business is
that companies like Genomatica and Elevance come to the public
markets talking about green discounts, rather than a green
premium. “Everyday low prices” is the ultimate in winning business
strategies for a lot of companies – and they have rightly
conceived of themselves as a refiner and partnered up with
companies that have world-class sales & marketing capabilities
for this sector.

Note the absence of the following in the Elevance business model:
subsidy, tariff, mandate, incentive, tax credit, emerging market,
or policy stability.

And there’s abounding evidence of the desire for green products
in these established markets, from customers, so long as they cost
and perform the same.

So, the are two big traunches of risk in this offering.

One, Elevance has filed its IPO before
scale-up, and absent a major customer order. Scale-up itself poses
a level of risk – not every industrial biotech process has
performed at scale exactly as well as planned.

Two, there’s the feedstock risk. By working with
palm, rapeseed and soybean oil, the company will be able to manage
the arbitrage between the values in these segments, but it is
exposed to long-term food sector demand for these oils, which may
put the income statement substantially underwater should food oils
become substantially de-linked from fossil crude oil, and result
in unacceptably high prices for customers. Not to mention the
potential for a continued de-linkage between natural gas and crude
oil – and the chance that major discoveries in, say natural gas
feedstocks, may put pressure on the pricing and margins.

Big concerns? Well, for the smaller investor, all concerns are
big concerns because it’s tougher to hedge them out. Fair to
say that the big risks are relatively remote failure
possibilities, that most renewables business have these sort of
risks, and over time they diminish as peak oil, or peak natural
gas, put more pressure on the petrochemical industry than the
renewables industry.